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Western Technology and
Soviet Economic Development
1917 to 1930
By
ANTONY C. SUTTON
HOOVER INSTITUTION ON WAR, REVOLUTION AND PEACE
STANFORD UNIVERSITY, STANFORD, CALIFORNIA
The Hoover Institution on War, Revolution and Peace, founded at Stanford
University in igig by the late President Herbert Hoover, is a centerfor advanced
study and research on public and international affairs in the twentieth century.
The views expressed in its publications are entirely those of the authors and do not
necessarily reflect the views of the Hoover Institution.
Hoover Institution Publications {76}
© 1968 by the Board of Trustees of the Leland Stanford Junior University
All rights reserved
Library of Congress Catalog Card Number: 68-24442
Printed in the United States of America
Second Printing 1970
To
Mum and Dad
Preface
By far the most significant factor in the development of the Soviet economy has
been its absorption of Western technology and skills. Previously this technolo-
gical transfer has not been treated in detail; hence the data that comprise
Part I of this study are thoroughly documented. Without such documentation,
the argument of Part II would appear less than credible. The reader may,
however, wish to pass on to Part II after briefly satisfying himself with the
general content of Part I. Chapter two discussing Soviet oil, and chapter
eleven, on electrical equipment, arc representative of the empirical treatment
of key sectors in Soviet industry.
The primary sources for data are the U.S. State Department Decimal Pile
and the German Foreign Ministry Archives, supplemented by journals in
half a dozen languages from a dozen countries. Of these, the journals published
by Soviet trade representatives abroad were of particular help.
Grateful appreciation is due the Relm Foundation for funds to purchase
several hundred thousand microfilmed documents. Acknowledgment is also
due to California State College at Los Angeles and to the Economic Opport-
unity Program for secretarial and research assistance. The National Archives,
the Library of Congress, and the Hoover Institution library were unfailingly
responsive and remarkably adept at interpreting requests for information.
Without their sympathetic aid, this study could have been neither attempted
nor completed. In addition, Dr. Stefan Possony of the Hoover Institution was
very helpful in making research suggestions which, in the final analysis,
turned out to be of fundamental importance. The Hoover Institution also
accepted the considerable burden of preparing the manuscript for publication;
particular thanks is due London G. Green for his capable and understanding
work as editor.
Finally, acknowledgment is made to F. W. B. Coleman, resident United
States Minister in Riga, Lativa, during the 1920s. Riga was the main American
'listening post" of this time, and dispatches by Coleman to Washington, D.C.,
viii Preface
suggest a deep understanding of events in the Soviet Union. These detailed
and accurate reports were of major help in this study.
It is especially important in a study which breaks substantially new ground
in a controversial area to point out that any criticism concerning the inter-
pretation of data must fall squarely on the shoulders of the writer, and not
on his sources. Such criticism is, of course, to be welcomed.
A. C. S.
Pasadena, California
April 1, 1966
Contents
Part I. An Empirical Examination of Foreign Concessions and
Technological Transfers
Chapter One: Introduction
Economic Development and the International Transfer of Tech-
nology
The Soviet Union and the Transfer of Technology
The Role of the Foreign Concession, 1917 to 1930
The Place of the Concession in the Economic History of theU.S.S.R.
Methodology of the Study
Chapter Two : Caucasus Oil Fields—The Key to Economic Recovery
Collapse of Oil Field Drilling
International Barnsdall Corporation
Oil Field Properties Covered by the Barnsdall Agreement .
.
Extent of Barnsdall Drilling
Changes in Drilling Technology at Baku
Changes in Pumping Technology and Oil Field Electrification
The 'Pure' Oil Concessions
Oil Development in the Soviet Far East
Oil Exploration Technology
Pipeline Construction, 1925-8
Refinery Construction
Acquisition of Foreign Markets for Petroleum Products .
.
Summary of Soviet Oil Development, 1917-30
Chapter Three: Coal and Anthracite Mining Industries
Years of Crisis and Stagnation
Union Miniere and the Donetz Basin Coal Mines
The Kuzbas Project of the American Industrial Colony .
.
Pure Concessions in Remote Areas
3
4
6
9n
16
18
21
23
*3
25
27
29
3°
31
35
40
43
45
46
48
5°
Contents
Technical Assistance from Germany
Technical Assistance Contracts with Stuart, James and Cooke, Inc.
Roberts & Schaefer and Allen & Garcia Contracts
Results of the Mechanization of Coal Mines
Chapter Four : Early Development of the Soviet Metallurgical Industry
The Southern Ore Trust (Yurt)
Reconstruction in the Metallurgical Sector
The Structure of Ugostal in 1929
Concession Offers in Metallurgical Construction .
.
Pure (Type I) Concessions in the Metallurgical Industry
Technical-Assistance Agreements with Gipromez .
.
Chapter Five: Non-ferrous Metal Mining and Smelting; The Manganese
Concessions
Lead-Zinc Mining and Smelting
Copper Mining and Smelting Industry; Silver
A Non-Collusive Duopsony; The Manganese Concessions
The Implications of the Harriman Failure
Chapter Six: Gold Mining, Platinum, Asbestos, and Minor Mineral
Concessions
Gold Mining and Foreign Concessions
The Lesser Gold Concessions
Discovery and Development of the Alden Gold Fields
Platinum Exports
Bauxite and the Aluminum Company of America .
.
Mica Mining and the International Mica Company, Inc.
Asbestos Production in the Urals
Asbestos Roof Shingles Manufacture
Chapter Seyen: The Industrialization of Agriculture
The Krupp Agricultural Concessions
Other 'Pure' Farming Concessions
German-Russian Seed Cultivation Company
Technical Assistance in Agriculture
Cotton Irrigation
Merino Wools and an Australian Embargo
Replenishment of Livestock Herds
Livestock and Dairy Industry Concessions; Union ColdStorage, Ltd.
Foreign Agricultural Communes in Russia
Jewish Land Settlement Programs
The Fate of the Agricultural Communes
The Agricultural Equipment Manufacturing Industry
51
5 1
S3
54
58
5966
67
70
74
76
So
86
89
92
100
104
105
106
107
10S
112
114
116
118
119
,121
122
123
I24
136
129
*3*
132
Contents xi
Attempts to Develop a Soviet Tractor, 1922 to 1926 • "33
International Harvester Company and Nationalization .. '35
Position at Mid-Decade'37
Krasnyi Putilovets and the Ford Motor Company .
.
• ! 39
Credits Granted by Agricultural Machinery Producers to the Soviet
Union, 1925^3
Chapter Eight: Fishing, Hunting, and Canning Concessions
Norwegian Fishing Concessions -
J45
Fur and Skin Concessions" 4
Siberian Fish CanneriesI4
American Construction of Salmon Canneries in Kamchatka .
.
14s
Chapter Nine: Restoration of the Russian Lumber Industry, 1921-30
Severoles Trust and Foreign Lumber Companies 1 S°
I C I
Russangloles, Ltd.
Russhollandoles, Ltd. (Russian-Dutch Timber Company) ..
• 154
Ex-Chancellor Wirth and the Mologa Concession *55
The Exploles Trust in the Far East "59
Activities After the Departure of the Concessions ™°
Pulp and Paper Mills
Technical Assistance in the Lumber Industry
Soviet Lumber Trade from 1 921 to 1928
Chapter Ten :' Sovietization' ofthe Tsarist Machine-Building Industry
The Leningrad Machine-Building Trust (Lenmashstroi) .. • • 164
Mosmash and German Technical Assistance l66
Gomza and the Westinghouse Brake Works l67
Gomza and the German and Swedish Locomotive Program .
.168
The Baldwin Locomotive Technical-Assistance Agreement of 1929 173
General Electric Diesel-Electric 'Suram' Locomotive ..
..
174
Technical Assistance to Gomza Refrigeration Equipment Plants ..
175
General Technical Assistance for Orgametal
SKF (Sweden) and the Manufacture of Ball Bearings
Steam Boilers and Mechanical Stokers
Precision Engineering Technology and Its Acquisition
Conclusions
Chapter Eleven: Electrical Equipment Manufacturing Industry and
Goelro
The Formation of Trusts x°5
The Electro-Technical Trust (GET) i88
The Electrical Machine Trust (Elmashstroi) 191
The Low-Tension Trust • •IQ-3
if
161
162
176
177
179
180
183
Contents
Technical Assistance to the Low-Tension Trust
The Accumulator Trust
The International General Electric Company Contracts of 1928 and
1930
The Metropolitan-Vickers Electrical Company—Mashinostroi Tech-
nical Assistance Agreement
Socialism is Electrification; The Goelro Program
The Process of Hydroelectric Technology Acquisition
Chapter Twelve: Chemical, Compressed Gas, and Dye Industries
Nitrogen Fixation: Basis of a Chemical Industry
Synthetic Production of Ammonia in the United States
Manufacture of Nitric Acid and the Dupont Company
Solikamsk Potash Deposits
Manufacture of Sulphuric Acid .. .
.
Coke Oven By-products
The Russian-American Compressed Gas Company -'Ragaz)
Basic and Intermediate Dyes
Glass Manufacturing Industry
Resinotrest
Conclusions on the Chemical Industry
Chapter Thirteen: Clothing, Housing, and Food Concessions
The Formation of Trusts in the Textile Industry
The Russian-American Industrial Corporation (RAIC; and Sidney
Hillman
The Trilling, Novik, and Altaian Clothing Concessions .
.
Technical Assistance to the Textile Industries
French Technical Assistance to the Silk Industry
European Button Concessions
Technical Assistance to the Food Industry
Technical Assistance in Housing and Plant Construction .
.
Small Household Items
The Hammer Concessions
Chapter Fourteen : Transportation and the Transportation Equipment
Industries
Reconstruction of the Railroads
United States Technical Assistance to the Railroads
The Beginning of Railroad Electrification
Development of the Russian Automobile Industry
The Soviet Automobile Industry and Henry Ford
Telegraph Communications and Foreign Concessions
i9S
197
199
201
206
209
211
213
215
217
2l8
219
220
222
222
223
225
227
230
231
232
233
333
235
236
237
239
240
242
243
246
249
Contents xul
2The Radio Corporation of America Technical Assistance Agreement 250
German Aid for Reconstruction of Petrograd Harbor . . .
25
"
Reconstruction of the Russian Shipbuilding Industry .
.
25 3
Foreign Aid in Shipping Operations 2S4
The Beginnings of the Russian Air Lines 25°
Chapter Fifteen: German-Russian Military Cooperation and Technology
Tsarist and Junkers Aircraft Technology 2S9
The Red Air Force, 1929a63
Russian-German Training Centers a63
Bersol Poison Gas Production z°4
Production of Shells, Artillery, and Submarines for the Red Army
and Navy a65
Equipment of the Soviet Armed Forces in 1929 266
Chapter Sixteen: Soviet Trading Companies and the Acquisition of
Foreign Markets
Allied American Corporation (Alamerico)
United Kingdom Trading Companies
The Russo- British Grain Export Company
German Trading Companies and the U.S.S.R.
Russo-Austrian Trading Company (Rusavstorg)
Compagnia Industriale Commercio Estero (CICE) .
.
Credit from Western Firms
268
270
271
272
274
275
276
Part II. The Significance of Foreign Concessions and Technological
Transfers
Chapter Seventeen : The Foreign Firm and the'Arm's Length Hypothesis'
Charles Haddell Smith of the Inter-Allied Railway Commission in
Siberiaa84
The Hammer Family and Soviet Operations 285
American Organizations for Promotion of Trade with the U.S.S.R. 287
The American-Russian Chamber of Commerce 289
American Banks and Soviet Securities 290
European Trade with the Soviet Union 292
Conclusions . . . . . • • • • • • •• a94
Chapter Eighteen: Organized and Disorganized Governments: The
State Department and the Acquisition of Technology
Western Government Assessment of Soviet Intentions . . . . 295
Erosion of United States Policy on Soviet Trade Credits . . . . 296
The State Department and Patent Protection 299
xiv Contents
The Monopsonistic Power of the Soviet Trade Organization
The Bolshevik Attitude Toward the Foreign Firm
Bolshevik Leaders and the Joint-Stock Companies
Chapter Nineteen: The Necessity for Foreign Technology and the
Process of Acquisition
The Impact of Revolution on the Industrial Structure
The Trough of the Industrial Decline
The New Economic Policy (NEP) .. •
Concentration, Trustification, and Contraction
The Treaty of Rapallo (April 16, 192a)
Reconstruction and the Second Bolshevik Revolution
The Process of Acquiring Foreign Technology
The German 'Secret' Engineering Departments
Problems in the Acquisition of Foreign Technology
The Shakhta Affair
Chapter Twenty : The Western Contribution to Soviet Production and
Productivity, 1917-30
The Contribution of the Early Concessions
Sectoral Impact of Concessions on the Early Soviet Economy
Sectors Without Identifiable Concessions
The Degree of Technological Impact Within Specific Sectors
The Contribution of Imported Technology to Soviet Production
Chapter Twenty-one: The Significance of Foreign Technology and
Concessions for Soviet Exports
The Composition of Soviet Exports
The Significance of Pure and Mixed Concessions in Raw
Development
Chapter Twenty-two : Conclusions
Appendix A: A Guide to Sources of Material
The State Department Decimal File
Reliability of Data Originating Inside the U.S.S.R.
Appendix B : List of Operating Concessions, 1920 to 1^30
Type I (Pure) Concessions
Type II (Mixed Company) Concessions
Type HI (Technical-Assistance Agreement) Concessions
Selected Bibliography
Index
3°4
3°5
308
310
3 J 3
313
3i5
316
3!7
318
319
322
3^5
327
328
335
336
339
Material
34i
342
344
3Si
35 1
352
353
353
357
360
36s
369
Tables
i-i Concession Applications and Agreements, 1921-30 . -• 9
2-1 Average Monthly Drilling in Russian Oil Fields, 1900-21 .
.
17
2-2 Distribution of Crude Oil Production and Property Ownership
in the Baku Oil Fields, 1915 ..
•
22
2-3 Oil-drilling Tcchnique.Percentage Utilization by Azneft (Baku),
1913-28*
2-4 Crude Oil Extraction Technology in Baku Oil Fields, 192 1-2
and 1927-8^
2-s Electrification of the Grozny Oil Fields, 1923-7 • •
2°
2-6 North Sakhalin Oil Production, 1926-31 •- 3°
2-7 Russian Oil Pipelines Before 1930 ..
- •
• 3 2
2-8 Soviet Construction of the Grozny-Tuapse and Baku-Batum
Pipelines, 1925-8 33
2-9 Comparative Price and Delivery Schedules for 300-hp Diesel
Engines for Baku-Batum Pipeline 34
2-10 Construction of the Batum Refinery Complex, 1927-30 .
.
37
2-1 1 Construction of the Tuapse Refinery Complex, 1 927-30 .
.
38
2-12 Construction of the Soviet Inland Refineries, 1927-30 .- 39
2-13 Composition of Soviet Oil Exports, 1923 and 1928 .
.
4 1
3-1 Operating Foreign Concessions in the U.S.S.R. Coal and
Anthracite Mining Industry, 1922-30 47
3-2 Effect of United States Management in Kemerovo (Kuznetsk)
Coal Mines, 1923 • • • • " 49
3-3 Introduction of the Manufacture of Coal Mining Machinery . . 55
3-4 Early Mechanization of the Donetz Coal Basin, 1922-8 .. 55
3-5 Donetz Basin : Changes in Number of Shafts, Total Output and
Mine Averages, 1913 to 1926-7 5°
4-1 Ugostal (Southern Steel Trust) Production, 1913-2S, Donetz
Group a
4-2 Ugostal (Southern Steel Trust) Production, 1913-28, Eka-
terinoslav Group .
.
• •• • • •
'
4
xvi Tables
4-3 Ugostal (Southern Steel Trust) Production, 1913-28, AzovGroup 65
5-1 Sources of Zinc Metal Production in U.S.S.R., 1926-32 .
.
78
5-2 Sources of Lead Metal Production, 1927-8 79
5-3 Copper Ore Mines and Smelters, Production 1914 to 1927-8 82
5-4 Capacity, Production and Technical Assistance of Soviet Copper
Smelters, 1929 ' 84
5-5 Manganese Production in U.S.S.R., 1913-29 87
6-1 Sources of Gold Produced in the Soviet Union, 1913-28 .
.
96
6-2 Lesser Soviet Gold Mining Concessions Leased to Foreign
Operators, 1921-8 100
6-3 Asbestos Production in Russia, 1913 and 1923 . . .
.
108
6-4 Workers Employed by Uralasbest and Hammer Concession,
1921-4 109
6-5 Acquisition of Asbestos Mining and Milling Technology by
Uralasbest, 192 1 to 1930 111
6-6 Manufacture of Absestos Shingles by Foreign Companies .. 112
7-1 Production and Imports of Merino Wool in U.S.S.R., 1923-6 122
7-2 Price Schedule for Soviet and Foreign Tractors .
.
137
7-3 Technical-Assistance Agreements (Type IH) with the Post-
Revolutionary Tractor Construction Industry to 1930 .
.
142
8-1 Construction and Equipment of Kamchatka Salmon Canneries,
1928 148
9-1 The Soviet Lumber Trusts and Foreign Concessions . . .. 151
9-2 Exports of Sawed Lumber from the U.S.S.R., 1913-28, by
Destination 162
10-1 Plants Comprising the Leningrad Machine-Building Trust in
1923 l64
10-2 Plants Comprising Mosmash in 1923 166
10-3 Locomotive Construction by Gomza Works, 1921-3 . . .
.
171
10-4 Construction of Steam Locomotives in Russia and the U.S.S.R.,
1906 to 1929 172
10-5 Age of Steam Boilers in Russian Plants, 1914 and 1924 .
.
179
ii-i Agreements Between Foreign Companies and the Electrical
Equipment Trusts, 1922-30 .
.
.
.
. . .
.
. . 187
1 1-2 Plants Comprising the Electro-Technical Trust .. .. 189
1 1-3 Production of Heavy Electrical Equipment in Russia and the
U.S.S.R., 1913 to 1929-30 190
1 1-4 The Electrical Machine Trust (Elmashstroi) 191
1 1-5 Plants Comprising the Low-Tension Trust 193
11-6 Technical Assistance and Equipment Supply in the Goclro
Program, 1920-30 204
1 1-7 Comparative Construction Cost and Energy Cost at the Volkhov
and Zages Projects, 1927 a°5
I 2-1
12-2
14-1
14-2
20-3
2O-4
2l8
221
240
Tables, Charts and Maps
Soviet Acquisition of Basic Chemical Technologies, 1925-30 .. 214
Coke Oven By-products, 1914. i^S- and I0a6
12-1 Dye Production in the Soviet Union •• •• ••
German Exports to the U.S.S.R. and Proportion of Railroad
Materials • ' ' " ."
Technical Assistance Contracts (Type III) in the Soviet
Automobile Construction Industry to 1930 34°
14-3 Russian Scheduled Airlines in 19252 S
15-1 Soviet Purchases of American Aircraft Engines, 1926-9 - 2&I
15-2 Red Air Force Equipment and Western Origin, 1929 • 2°3
17-1 Specialized Trading Concessions (Type H) 27 2
17-2 Credits Advanced to the Soviet Union by Western Firms .. 278
19-1 Regional Distribution of Enterprises Under Government and
Private Control After NEP Reorganization, 1922 • • • 3*4
20-1 Sectoral Impact of Foreign Concessions (Types I and II) .
.
3*9
20-2 Sectoral Impact of Foreign Technical Assistance Agreements
(Type III) V j "it
Summary Statement of Sectoral Impact of Types I and 11
Concessions '334
Summary Statement of Sectoral Impact of Type III Technical
Assistance Agreement • 335
20-5 Summary Statement of the Sectoral Impact of All Concessions
Irrespective of Type 335
20-6 Direct and Indirect Impact of Western Technology by Sector
and Subscctor . . - •• •
•• " "
ai-i Capital Goods as Percentage of U.S.S.R. Trade, 1920 to 1930 341
21-2 Leading Soviet Exports and Significance of Concessions . . 343
CHARTS AND MAPS
2-1 Foreign Oil Drilling Concessions in the Caucasus, 1921-8 .
.
19
4-1 Metallurgical Plants in South Russia, 1926 6o
9-1 Acquisition of Foreign Lumber Markets: Phase I (1922-4) .
.
152
y-2 Acquisition of Foreign Lumber Markets: Phase II (after 1924) 153
i2-i The Transfer of Nitrogen Industry Technology to the U.S.S.R. 210
Glossary
Artel: Collective labor group
Basmach: Counter-revolutionary bandit
Bedniak: 'Poor' peasant
Centrotoyuz: Central Union of Consumers Co-operatives
Chervonetz: Ten ruble bank note
Dessiatin 2.7 acres
Glavk: Central board or committee
Glavkontsesskom: Chief Concessions Committee
Geolro: State Commission for Electrification
Gosbank: State Bank
Gosplan: State Planning Commission
Guberniia: Province
Hectare: 2.47 acres
Kolkhoz: Collective farm
Kopeck: Small coin, 1/100 of a ruble
Koustarny: Home industry, handicraft wares
Krai: Region
Kroner: Swedish monetary unit
Kulak: Literally 'fist' (term applied to 'rich' peasant)
Oblast'
:
Province
Pood: 36.1128 pounds
Rayon: District (of an oblast')
Ruble, gold: Ruble valued in gold at 0.222168 grams
Saxhen: 2-3333 Yards
Seredniak: 'Middle' peasant
Usufruct: Legal term for operation of an economic activity without
ownership rights
Uyezd: District
Verst: 0.6629 n"'68
xx Glossary
VSNKh Vyashyi Sovet Narodnogo Khozaistva—Supreme Council
(Vesenkha): of National Economy
Zemstoos Elected rural councils in tsarist Russia
Zolotnik 0.15 of an ounce (4.265 grams)
PART ONE
An Empirical Examination
of Foreign Concessions
and Technological Transfers
CHAPTER ONE
Introduction
ECONOMIC DEVELOPMENT AND THE INTERNATIONAL
TRANSFER OF TECHNOLOGY
It is accepted that a significant factor in the economic growth of those coun-
tries undergoing rapid development during the twentieth century is the
'advantage of coming late.' Advanced industrial and agricultural technology
can be effectively transferred, reducing the latecomer's investment in research
and development. Indeed, continuing investment in technology by advanced
countries has generally made for a dramatic decrease in capital-output ratios,
during the last sixty years. 1
Massell* argues, with empirical support, that the productivity increase in
United States manufacturing between 1919 and 1955 is attributable far more
to technological change than to increased capital investment. Traditionally
it has been assumed that capital investment exceeds technological advance as
the major factor in economic development. According to Massell however, 90
percent of the increase in the U.S. output per man-hour is to be attributed to
technological improvement and only 10 percent to increases in capital invest-
ment. Improvement in labor skills is included as technological advance.
In the sphere of Soviet development, other things being equal, we would
then look for technology as a contributing factor of some significance. Develop-
ment literature in the West omits this factor, although recognition of its
importance is implicit in the Soviet emphasis on technological advance.
> Paul S. Anderson, 'The Apparent Decline in Capital-Output Ratios,' The Quarterly
Journal 0/ Economics, LXXV, No. 4 (November 1961), 629.
t B F. Massell, 'Capital Formation and Technological Change in United States
Manufacturing ' ktmen of Economics and Statistics, XLII (May 1060), (82-8.
KSwrmmology , the change in productivity is due to a shift of the produc
ftSBte right rather than a deepening iriMp.ttl.mttM.ty and* move-
ment along the production function. Other writers have arnved at similar conclu-
sions. Maxell's conclusions coincide with those of Solow and Fabncant, who use
different data and methodology.
4 Western Technology and Soviet Economic Development, 1917-1930
Considerable evidence will be presented to show that Soviet technology was
completely dependent on the West in the decade of the 1920s. Thus we can
argue that a major portion of Soviet economic development would have been
dependent on the technological contribution of Western enterprises even had
there been no capital transfers. There were, however, such capital transfers
—
of at least sufficient magnitude to support the transfer of technology.
The argument of this study hinges indeed on the contribution of Western
technology to Soviet economic development. As technology in the period
between 1917 and 1930 originated in the West and not in the Soviet Union,
it is concluded that the Western contribution was decisive in Soviet economic
development during this period. The essential technology can usually be
acquired for significantly less than the cost of the overall project. For example,
the total cost of the Volkhov hydroelectric project was 90 million rubles, the
major part of which was absorbed by the construction of the dam, the access
roads, and the supporting buildings, while only 6 million was spent on
imported equipment. However, it was the imported equipment—the turbines,
generators, and switchgear—that determined the technical success of the
project.
This, of course, is not to argue that technology is the only factor in economic
development. Political, social and psychological factors play their respective
roles. This interplay is particularly interesting in the Soviet example but is,
unfortunately, outside the scope of this study.
THE SOVIET UNION AND THE TRANSFEROF TECHNOLOGY
A study of the influence of Western technology upon the early stages of
Soviet economic development may then be a profitable field for research and,
in fact, may change our view of those forces allegedly 'released* by socialism
and traditionally held responsible for Soviet economic growth. No rigorous
analysis of this technological transfer has yet been attempted, although its
existence has been noted within the Western world.3
The mechanisms for this transfer were in fact many and varied, and include
some not found elsewhere in world economic development. First, there was
a carryover of internal capital investment from prerevolutionary industrial
Russia.4 This industrial structure was but slightly affected by the Revolutions
and subsequent Civil War; evidence to be developed in this study indicates
* Werner Keller, Ost minus (u«i= null (Munich : Droemersche Vertagsmstalt, i960).
* Anton Crihan, Le capital Hranger en Ruttie (Pari*: Pichon, 1934). P. V. Oil, Letcapitaux itrangert at Ruitie (Petrograd: 1922), estimated this capital, expropriated
by the Soviet government, to be over Si billion, a figure quoted in S, N. Prokopo-vitch, Hittoire Eeonomvpu dt 1'U.R.S.S. (Pari*: Flammarian, 195a), p. 381.
Introduction 5
that the popular story of substantial physical destruction is, except in the case
of the Don Basin, a myth. More damage was done to Russian industry by
the ineptitudes of War Communism than by World War I, the Revolutions,
the Civil War, and the Allied Intervention combined. Many of the largest
plants worked at full capacity right through the Revolutions and Civil War
under their 'capitalist' managers. Others, with equipment intact, were placed
in a state of 'technical preservation' until managers with skills requisite to
recommence operations could be found.
Second, the New Economic Policy (NEP) denationalized certain economic
activities and restored some measure of free enterprise to both foreign and
domestic capitalists. Internally, the relaxation of controls affected retailing,
wholesaling, and small industries employing less than twenty persons. How-
ever, the 'commanding heights' of the economy (iron and steel, electrical
equipment, transportation, and foreign trade) were retained under Communist
control and grouped into trusts and syndicates. Foreign capital and technology
were then invited into these units through concessions and mixed joint-stock
companies, both with and without domestic private and state participation.
The concession, in its varying forms, was the most significant vehicle for the
transfer of foreign technology.
At the beginning of the NEP, the emphasis was on concessions to Western
entrepreneurs. In the middle and last years of the decade the concession was
replaced by technical-assistance contracts and the import of complete plants
and equipment. After the acquisition of a specific technology, by cither
concession, purchase, or confiscation, came duplication in Soviet plants.
Major acquisitions were supplemented by the purchase or appropriation of
designs, plans, patents, and prototypes. This process extended even to
agriculture. For instance, the purchase of pedigreed stock provided for rapid
multiplication—equivalent in its way to the reproduction of technical pro-
cesses.*
Athird transfer vehicle was the employment of individual Western engineers
and experts and the corresponding dispatch of Soviet engineers and workers
to training positions in foreign plants. When foreign assistance was required
on a substantial and continuing scale, the technical-assistance contract was
utilized. The study trip abroad by Soviet engineers was used both as prelude
* Numerous examples are given in detail below. One interesting importation of
Western agricultural technology was the acquisition of Australian and American
stud merinos. In 1925, the Soviet government purchased between ao.ooo and 30,000
pedigreed breeding sheep. In order to maintain Australian flocks, the Australian
government placed an embargo, still maintained today, on the export of sheep for
breeding purposes. (House of Representatives, Commonwealth of Australia,
Parliamentary Debates, izth Parliament, 1st Session, p. 3J5.)
6 Western Technology and Soviet Economic Development, igi^-ipjo
to a technical-assistance contract and when minor foreign training or technical
help was required.*
The transfer of technical knowledge sometimes took forms easily over-
looked. For example, the number of subscriptions taken out by the Soviet
government for American technical and scientific publications jumped
dramatically as the industrialization process got under way.'
The penetration of early Soviet industry by Wester;: companies and indi-
viduals was remarkable. Western technical directors. Tonsulting engineers,
and independent entrepreneurs were common in the Soviet Union. In retro-
spect, perhaps the most surprising examples were the directorships held by
General Electric affiliates on the boards of Soviet elec'rical trusts.9
Although the technological transfer took many forms, dictated by political
and economic circumstances, the central mechanism v. as the concession,
around which this study is built. The concession was also interrelated with
other mechanisms and the very small amount of internally originated research,
development, and innovation. It is true that after 1930 the importance of
the concession declined greatly as other forms of technological transfer came
into use but for the period from 19 17 to 1930 the concession is central.
THE ROLE OF THE FOREIGN CONCESSION, 1917 TO 1930
The use of concessions was suggested in December 1917 at the first All
Russian Congress of Councils of the National Economy, After extensive
debate it was agreed that concessions were desirable for the restoration of
the Russian economy. Subsequent negotiations with American, German,
French, and British capital however, were temporarily halted by the Allied
Intervention and Civil War.
In 1920, when political conditions were more stabilized, Lenin issued a
decree allowing concessions to be granted by simple departmental permission.
However, negotiations with Urquhardt, a British financier and well-known
capitalist in prewar Russia, ended in failure ; and so ended the second attempt
to establish foreign concessions. Urquhardt sensed the likelihood of con-
* A partial list is in Saul G. Bron, Soviet Economic Development and AmericanBuiiness (New York: Horace Liveright, 1930), pp. 144-6, Bron Was chairman of
the Amtorg Trading Corporation in New York.
* In 1925 the Soviet government held 200 subscriptions to United Statu technical
journals, in 1936-7 about 1,000, in 1927-8 about 8,000, and in 1928-9 more than12,000, as noted in Amtorg Trading Co,, Economic Review of the Soviet Union(New York: 1938), III, 383.
1 The General Electric Co. was represented on the board of Electroexploatsia, whichwas responsible for new electrical power stations and systems construction, SwedishGeneral Electric (ASEA) was • 'founder and a principal shareholder' of Electrosela-
troi, responsible for electrification of rural areas, aa noted in Annuairt Politique et
Economtque, (Moscow: N.K.I.D., 1926), p. 25 (rear).
Introduction 7
fiscation and would not embark without ironclad guarantees. An agreement
between Krassin and Urquhardt was rejected by Lenin, who had problems
with the more unrealistic members of the Party, who refused to accept a
return of foreign capital under any guise,
A third, successful, attempt stemmed from the decree of March 8th, 1923,
replaced by the law of August 21, 1923, which was further amended in
December 14, 1927 and supplemented by special ordinances of May 23, 1926
and April 17, 1928. The August 1923 law established a Chief Concessions
Committee (Glavkontsesskom) and the legal structure for the conduct of
negotiations and the transfer of Russian property to foreign enterprises.8
A pure concession is an economic enterprise in which a foreign company
enters into a contract with the host country to organize, equip, and exploit
a specific opportunity, under the legal doctrine of usufruct. In return for the
burden of development, exploitation, and production, the foreign company
receives a non-contractual surplus or profit, usually taxed by the host country.
The Soviets even considered the foreign commune, wherein foreign settlers
entered the U.S.S.R. with their tools and equipment, as an agreement 'in lease
usufruct.' 10 A variant of the pure concession found in Soviet development is
the credit or contract concession. Here the foreign firm has the function of
organization and finance, but operation is by a Soviet organization. Mixed
companies are of this nature, and are still utilized in Soviet economic relations
with satellite countries. Technical-assistance contracts are sometimes viewed
as concession operations by the Soviets but rarely by the West. The return
allowed to the foreign participant in a technical-assistance agreement is usually
determined by contract and is not merely a surplus accruing to the entrepre-
neur. On the other hand, not all economic agreements lacking contractual
payment features can be described as concessions. The design competitions,
such as the Locomotive Design Competition of 1927, had. non-contractual
rewards but were not concessions, although they had elements of technological
transfer.
The mixed corporation was also used in agriculture, as were credit and
contract concessions financed by foreign firms but operated by Soviet organiza-
tions. In addition, technical-assistance contracts were used to acquire advice
on particular agricultural problems, and in some cases concessions participated
in the financing of equipment purchases.
Concessions, however, operated within all sectors of the economy, although
the largest single group numerically was in raw materials development. Indus-
• The Concession Law of 19*3 is reprinted in the Journal of the Workmen-Peasant
Government of the U.S.S.R., No. 13, 1923, The amendment is reprinted in Collec-
tion of Lava of the U.S.S.R. (Moscow: 1927), Part I, No. 69.
** The Imkommune Uhlfeld (Austria) is a good example. See page 119.
8 Western Technology and Soviet Economic Development, igij-ig^o
trial concessions formed a smaller but, as will be seen, strategically important
group. Although concessions were offered in housing and public utilities,
they were not, with the exception of a few housing developments, attractive
to foreign investors.
In size, concessions ranged from the gigantic Lena Goldfields, Ltd., of the
United Kingdom, operating thirteen separate industrial complexes and valued,
after Soviet expropriation, at over $89 million, to small factories manufac-
turing pencils (the Hammer concession) or typewriter ribbons (the Alftan
concession).
The Soviet definition of a concession is sometimes broader than that used
in the West, and to avoid confusion the broader definition is utilized in this
study. Concessions are here categorized in three ways; each category refers
to a distinct organizational type.
The 'pure' concession (or Type I) was an agreement between the U.S.S.R.
and a foreign enterprise whereby the foreign firm was enabled to develop
and exploit an opportunity within the U.S.S.R., under the legal doctrine of
usufruct, i.e., without acquiring property rights. Royalty payments to the
U.S.S.R. were an essential part of the agreement, and in all cases the foreign
enterprise was required both to invest stipulated capital sums and to introduce
the latest in Western technology and equipment.
The 'mixed' company concession (or Type II) utilized a corporation in
which Soviet and foreign participation were on equal basis (at first 50:50
but later 51 : 49), with a Soviet Chairman of the Board who had the deciding
vote in cases of dispute. Normally the foreign company invested capital and
technology or skills and the Soviets provided the opportunity and the location.
Labor, both skilled and unskilled, was partly imported, and profits were to
be split.
Whereas the first two types are clearly recognized as concessions, the
technical-assistance contract (or Type III concession) has not usually been
so designated, except in the U.S.S.R. Probably the Soviets were well aware
of the negligible marginal cost to Western companies of supplying technical
knowledge, patents, designs, and similar technological vehicles. In essence,
Type III was a 'reverse technical concession,' in that the Soviets were making
payments to exploit foreign technological resources; the Western company
was not, in this case, making payment to exploit Russian natural resources or
opportunities.
All known concessions can be grouped into these three categories, as table
1-1 demonstrates. The common link is that each type, in its own way, acted
as a mechanism for the transfer of Western technology and skills, although
only Types I and II involved the transfer of capital.
Table 1-1
Introduction
CONCESSION APPLICATIONS ANDAGREEMENTS, 1921-30
Year
10 Western Technology and Soviet Economic Development, 1917-1930
Then he adds:
The policy of granting concessions to foreign firms to undertake trading
and industrial ventures was unsuccessful in yielding more than about 10
million rubles (gold) of foreign capital in the first years of the concession
policy.1*
This is a meaningless statement unless the period in question is indicated.
Several concessions contributed much more than 10 million rubles of invest-
ment apiece.
Soviet sources, which would hardly overstate the investment of concession
capital, give figures for 1927 and 1928 indicating an investment, at least five
times greater than that given by Dobb. Nevertheless, Dobb continues:
In the early 'aos' an attempt had been made to invite the aid of foreign
capital on a limited scale in the form of concessions grants. But we have
seen that the policy did not meet with any great success. ..."
Dobb's conclusions are, in fact, unsound and unsupported by the available
concessions data.
Non-Marxist writers have also assigned a minor role to the foreign conces-
sion. A. Baykov 1* does not mention concessions. A. Yugoff l* holds that they
had only a slight effect on economic development. Their ineffectuality, he
argues, was due mainly to a prohibitive currency policy and restrictions on
the free export of foreign bills of exchange. On this basis, Yugoff generally
discounts the technological and economic impact of the concession.
M. Hwang Jen" ignores restrictions on export of proceeds mentioned by
Yugoff, and instead argues that export of proceeds was a source of loss to
the Soviets, and that generally the concession was an inefficient vehicle for
the transfer of either capital or technology. Jen is impressed with the ingenuity
of the concession but concludes that it was unrealistic as a method of develop-
ment.
There has been some difference of opinion within the executive branch of
the United States government on the importance of the concession in Soviet
economic development. The State Department has not considered the conces-
sion particularly important.18
" Ibid., p. 150.
» Ibid., p. 180.
" The Development of the Soviet Economic System (New York: Macmillan, 1947).
u Economic Trend* in Soviet Rustia (New York: R. Smith, 1930)1 PP- Ml-3.
" Le Rigime da Conceuiotu en Ruitie Sovittigue (Paris: Gamber, 1929).
11 The importance of the concession has been in general toned down. For example,
in submitting advice to Professor Raymond T. Bye for a speech before the AmericanEconomic Association, the State Dept. suggested that '& few large concessions' be
re-stated as 'one large concession* (316-109-807). (Numeral references to U.S.archivs] material are explained in Appendix A.)
Introduction 1
1
On the other hand, United States Military Intelligence (MID) arrived at
conclusions closer to the theme of this study:
The lack of capital, the failure of the New Economic Policy to stimulate
actively trade and production, and the exhaustion of raw material stocks
have influenced the leaders to look outside of Russia for aid in bringing
about economic recovery. 1*
and:
By September 1927, Soviet authorities are reported to have granted 156
concessions, embracing practically all branches of national economy. In
February 1928 there were 110 concessions in operation. 20
In brief, despite the single contrary estimate mentioned, the concession has
generally been regarded, in the West and in Russia, as a negligible factor in
Soviet economic development. Further, it has been suggested that supportive
data is unavailable. Keller claims concession operation records arc buried in
the files of each firm and that the Soviets will not release their data."
In the light of this almost universal conclusion that the concession was
insignificant as a development mechanism, certain essential questions must
be clearly answered. Can the data on concessions and transfers be assembled?
Is such data reliable? Does the assembled data support the current assumption
of a negligible role for the concession? Finally, what was the contribution of
the concession to Soviet technological and economic development?
METHODOLOGY OF THE STUDY
A simple but consistent methodology is utilized in this study. Our objective
is to estimate in a quantitative manner the impact of Western technology on
early Soviet economic development. Each plant in this fairly primitive economy
is identified and the origin of its equipment and technical processes traced.
Because many of the plants were operated by Western concession operations,
the major research task has been to obtain extensive and accurate data on
concession operations. This was a complex and time-consuming task, involv-
ing a search in sources originating in a dozen countries. The data generally
comes from one of five sources distinguished by varying degrees of reliability.
This variety however, allows for comparison and informed interpretation of
data from different sources on many similar problems.
» U.S. War Dept., Soviet Russia; on Economic Ettimate tMarch 18, 1928, p. 43 IH>
(U.S. State Dept. Decimal File, 3 16-1 10-306).
*> Lot. eit. The estimate of 156 concessions is not inconsistent with table 1-1. MIDprobably counted only Type I concessions, while table 1-1 col. a includes Types
1 and II.
" Keller, op. cit., p. sio.
12 Western Technology and Soviet Economic Development, 19x7-1930
The primary sources of data are the United States State Department Decimal
File and the German Foreign Ministry Archives for 1917 to 1930. These are
a superlative source of detail not available elsewhere; yet a few concessions
were not recorded by their respective home governments. In general, conces-
sions and similar agreements were noted in Western news media, but with
scanty detail; it is rare that the German or American archives provide data
on a concession unmentioned in some newspaper; about 10 percent arc
recorded only in the archives. Most concessionaires were reluctant to provide
details, and considering the shabby treatment the majority received from the
Soviets, it is unlikely they wanted to publish the amount of their losses.
However Western governments were interested in the progress of concessions,
and instructions went out to consular and other officials to acquire data. TheU.S. Riga (Latvia) consulate was very active in this collection process.
The State Department Archives contain a number of firsthand reports of
visits to Soviet plants made by United States company officials in search of
business. In some cases, however, such as the W. A. Harriman manganese
concession, the State Department had to glean its information from indirect
sources such as European newspapers.22 Archival sources are, then, incom-
plete. They have to be utilized concurrently with data from the four other
sources.
The second source of data is Western news media and in general consists
of voluntary information releases from those companies desiring to publicize
their operations. During the 1920s fear of public opinion curbed news
concerning the concessions of many companies.23 Indeed, some concessions
known from other sources, are not recorded at all in Western news media.
The problem with this second group of sources is incompleteness of detail
and possible corporate bias to protect a 'public image.'M
The third source of data, and a surprisingly lucrative source, consists of
publications of Soviet trade representatives in Western countries. These
sources have been treated with the same circumspection as data originating
within the Soviet Union. However, it has been found that data from this
source usually agrees with news media reports, with specific exceptions noted
in the text. The major exception occurs in explanations for liquidation of
concessions; official Soviet explanations often diverge considerably from the
versions of the expropriated corporation. The explanation for the existence
of detailed information in Soviet sources lies in the intent of the publications
:
to encourage further investment by Western companies. The information
" U.S. State Dept. Decimal File, 316-138-17/19.
" New York Timet, August 17, 1915, p. 3, col. 5,
" The most useful Western newspapers are the Timet (London), the New YorkTimet, UInformation (Paris), and the Russian Daily News (Harbin, China).
Introduction 13
had to be reasonably accurate— it could be checked, and the greatest problem
of the Soviets then, as now, was to instill confidence. There was, however,
no requirement to publish adverse information. Although these publications
were used to print 'explanations' by some Western businessmen for the
expropriation or failure of other concession enterprises, the 'explanations'
were consistently pro-Soviet.85
A fourth source consists of data originating within the U.S.S.R., particularly
in Pravda, Izvestia, and Ekonomicheskaya Zhizn. A scries of five maps
(dated 1921) suggests the vast plans, involving thousands of projected conces-
sions, which characterized early Soviet thinking. These are reproduced in
U.S. State Department Archives (130-1207/1234). An atlas of available
concessions was also published in 1926 by the Central Concessions Committee
(Karty kontsessiotmyklt ob'ektov S.S.S.R.) together with a few little booklets
describing available concessions. These are useful as an indicator of the
technological state of the plants being offered.
Soviet sources are viewed here in the light of the 1927 decree making the
transmission of economic information prejudicial to Soviet concessions policy
a crime against the state. Concessions and foreign companies working within
the U.S.S.R. felt the sting of a decree against actions considered criminal only
in the Communist world. Representatives of the Swedish firms Alfa Lava! and
Diabolo-Scparator, manufacturers of dairy equipment (particularly cream
separators) were accused of economic espionage in 1928 because they deter-
mined the probable future requirements of Soviet trusts for cream separators
and reported the results of the market survey back to their respective firms in
Sweden. The three defendants who worked for the Swedish firm were given
five to eight years each in prison. Eight employees of Soviet trusts and
commercial organizations, together with a German citizen named Bartsch,
were given from one to three years each for accepting bribes and abetting
economic espionage.- Consequently, after 1927, the flow of data from both
the West and from the Soviet internal and external press declined substantially.
Whereas detailed reports exist on industrial conditions up to 1927, few arc
found for the period from 1927 to HJ30.2 '
The fifth source consists of a collection of miscellaneous material in several
languages, including books written by engineers, consultants, and others who
85 Amtorg Trading Co. Economic Review of the Soviet Union {New York; 1928),
III. 373.»• Based on article in Foiii.se/ie.Zeitiwf (Berlin), July iqs8, as reported by the American
Legation in Berlin, Report No. 375° of July *4. >°28 (U.S. State Dcpt. File,
316—109-754/5). Bartsch was promptly released.
*' The report by M. Klcmmer, a Western Electric Co. engineer, to the U.S. State
Dept. (U.S. State Dept. Decimal Kile, 3:6-141-6*8) is clearly economic espionage
<vithin the Soviet meaning of the term. See also chap. it.
14 Western Technology and Soviet Economic Development, 1917-1930
worked in the U.S.S.R., and statistical summaries and handbooks publishedby Soviet representatives abroad.
In general, the problem ofinterpretation of Soviet data is not acute, althoughit is time-consuming. Data distortion had not at this time reached the quag-mire stage; the major problem is incompleteness and the pervasive Soviethabit of omitting unfavorable facts and figures.
Use of data from several sources enabled cross-checking. As a general rule,
data from Soviet and Western sources had to be consistent before it wasutilized (exceptions to this rule are noted). Such a method avoids the problemof choosing between contradictory statements and statistics. For example,statements concerning the condition of the electrical equipment industry in
1922 can be found in the Soviet press which lead to the conclusion that it was,on the one hand, healthy and profitable,** and, on the other, in a state ofnear-collapse.** Evidence was also found that the electrical trusts wereapproaching foreign companies for help. 30 Subsequently foreign engineers
entered the U.S.S.R. and their survey reports found their way into Westerngovernment archives.31 With this support, the second conclusion could beaccepted as reasonably factual.
Omission, at times, assumed significant proportions. Acceptance of themineral production figures for 1927-8 published by the Leningrad Academyof Science Geological Committee would lead one to believe that neither goldnor platinum was produced in the U.S.S.R., and that the Lena Goldfields,Ltd., concession produced only limestone, dolomite, and quartz, whereas, infact, it produced almost 40 percent of Soviet gold, 80 percent of Soviet silver,
and significant proportions of copper, lead, zinc, and iron.** Similarly, theconcession agreement with International Barnsdall Corporation omitted all
reference to the specific geographic area covered by the agreement, although
n 'Experience proved that the electrical industries had improved very much underGovernment control. They were working satisfactorily and even giving profit tothe State. Ixvestm, October 9, 1921 (paraphrased).
" Three months before the October 9 statement above, half the electrical plants infetrograd had been closed due to a fuel crisis and the others drastically slowedaccording to Ixvatta, July 12, 1921. Eight months after the October 9 statement,the industry is described as having no working capital, no credits, no payments,.
• • the position is a very difficult one . . . electric lamps and cables can onlybe obtained by force . . .' according to Ekonomicheskaya Zhixn, No. 124. Tune 71923.
'*
" Electro-Technical Trust (GET) letter to International General Electric Inc., May», 191a (U.S. State Dept, Decimal File, 316-139-38).
» Examples are the B. W. Bary report (1921) (U.S. State Dept. Decimal File, 316-i39-»); and the Reinkereport(i923)(U.S. State Dept. Decimal File, 3 16-10S-672).
" V. I. Kruglyakova (ed.), Sbornik ttatisticketkikh svedenii po eornm i gornozavodtkprotayshltmiasti S.S.S.R. tta 1937I8 gg. (Moscow: ^30) pp. 60, 74, 90, to*, 106,14?, 15°, 15*- Limestone and quartz were used as a flux for the (statistically non-existent) Lena Goldfieldi gold-smelting operations.
Introduction 1 5
the W. A. Harriman manganese concession agreement had its geography
spelled out in minute detail,33 A healthy dose of skepticism has proved to be
an invaluable research tool.
Reasons for omission in the case of Barnsdall arc significant and arc outlined in
chap. a.
CHAPTER TWO
Caucasus Oil Fields
—
The Key to Economic Recovery
The Caucasus oil fields are a major segment of Russian natural resource
wealth. Baku, the most important field, was developed in the 1870s. In 1900
it was producing more crude oil than the United States, and in 1901 morethan half of the total world crude output, The Caucasus oil fields survived the
Revolution and Intervention without major structural damage and became a
significant factor in Soviet economic recovery, generating about 20 percent
of all exports by value; the largest single source of foreign exchange. Theprocess by which the oil economy recovered from Impending disaster andacquired modern refinery operations in a brief four or five years is the topic
of this chapter.
COLLAPSE OF OIL FIELD DRILLING
Caucasian fields require continuous drilling to maintain an oil flow from
producing wells. Therefore, oil production in this area .s directly proportional
to the amount of drilling undertaken. Before the Revolution, drilling averaged
in excess of 35,000 feet per month, and had been as hrjh as 50,000 feet in
Baku alone.
The Bolsheviks took over the Caucasus in 1920-1, and until 1923 oil field
drilling almost ceased. During the first year of Soviet rule ' ... not one
single new well has started giving oil' ' and even two years zfter Soviet occupa-
tion, no new oil-field properties had been developed. In addition, deepening
of old wells virtually ceased. As a result, water percolated into the wells, and
the flow of crude oil became first a mixture of oil and water and finally a flow
of oily water.
' U.S. State Dept. Decimal File, 316-137-221,
Caucasus Oil Fields—The Key to Economic Recovery 17
Table 2-1 AVERAGE MONTHLY DRILLING IN RUSSIANOIL FIELDS, 1900-21
1900 1913 xg2o zgzi
48,496 ft.* 36.665 ft. 780 ft. ££ 336 ft.;
Sources: 1000—A. Beeby Thompson, The Oil Fields of Russia (London: Lockwood,1908), p. ISO.
1 91 3—G. Ghambashidic, The Caucasian Petroleum Industry and Its Impor-tancefor Eastern Europe and Asia (London : Anglo- Georgian Society, 1 91 8), p. 9.
1920-21
—
EkonomUheskaya Zhizn, May 20, 1921.
* Baku only.
Drilling records are an excellent indicator of the state of oil field mainte-
nance, development, and production. The complete collapse after the Soviet
takeover is clearly suggested in Tabte2-i. In 1900, Russia had been the world's
largest producer and exporter of crude oil; almost 50,000 feet of drilling per
month had been required in Baku alone to maintain this production. By early
1921, the average monthly drilling in Baku had declined to an insignificant
370 feet or so (0.7 percent of the 1900 rate), although 162 rigs were in working
order. This drilling was concentrated in only eight holes due to lack of steel
pipe, 2
The result was that, by 1922, half of the Baku wells were idle and the
remainder were producing increasing quantities of water. In the Grozny field
a greater portion of the wells were idle; only eight were in process of drilling,
and the Old Grozny section was completely shut down. Smaller fields at
Emba and Kuban were in similar chaos; both had received extensive drilling
in 1915; consequently there were forty to fifty producing wells in 1922 but
no new or maintenance drilling was in progress.3
The reasons for the catastrophic decline in oil-field production were four.
First the number of available oil- field workers declined from about 40,000
in 1915 to less than 10,000 in 1920-1; coupled with this was the growing
technical inefficiency of the remaining workers. Second, there was a break-
down in railroad transportation and a decline in pipeline capacity, because of
lack of maintenance. Third, new oil-field supplies and equipment, including
repair facilities were almost nonexistent. Last, there was a breakdown in the
oil field electrical supply system. One of the largest Baku powerhouses, for
example, had twenty-two water tube boilers, none were in operation in 1922, 4
* U.S. State Dept. Decimal File, 316-137-442.3 The decline of the Caucasus oil fields is covered in detail in Ekonamicheskaya Zhizn
for 1921-2.
* Ekonomickeskaya Zhizn, December 24, 1922 and February io, 1923,
18 Western Technology and Soviet Economic Developm\tt, 191J-1Q30
The paradox was the collapse of one of the few industries capable of generat-
ing sufficient foreign exchange for an industrial revival. Serebrovsky, Chairmanof Azneft, put forward the program for recovery in a Pravda article. The planfor 1923 was to increase oil-well drilling to 35,000 sazhens per year (245,000feet). This would require 35 rotary drills (to drill 77,000 feet) and 157 percus-sion drills (to drill 130,000 feet). Serebrovsky pointed out that Azneft had norotary drills, and that Russian enterprise could not supply them. Rotarydrilling, however, was essential for the success of the plan. He then announced
:
But just here American capital is going to support us. The American firmInternational Barnsdall Corporation has submitted a plan. . . . Lack ofequipment prevents us from increasing the production of the oil industryof Baku by ourselves. The American firm . . . will provide the equip-ment, start drilling in the oil fields and organize the technical productionof oil with deep pumps.*
During the next few years International Barnsdall, together with the LuceyManufacturing Company* and other major foreign oil-well equipment firms,
fulfilled Serebrovsky's program. Massive imports of equipment came fromthe United States. International Barnsdall inaugurated the rotary drilling
program, initiated Azneft drilling crews into its operational problems, andreorganized oil-well pumping with deep-well electrical pumps.
INTERNATIONAL BARNSDALL CORPORATIONNumerous British, Swedish, Dutch, Greek, German, and American oil-
field concessions were rumored from 1919 onward, but there is no evidencethat any were granted and implemented, in spite of many extravagant claims,
before the three Barnsdall concessions in 1921-2.
The first International Barnsdall concession was signed in October 1921,7
and was followed in September of 1922 by two further agreements. There is
no doubt that Barnsdall did work under the first agreement. Pravda reportedgroups of American oil-field workers on their way to the oil fields," and acouple of months previously the United States Constantinople Consulate hadreported that Philip Chadbourn, the Barnsdall Caucasus representative, hadpassed through on his way oar of Russia.9 In particular, the U.S. State Depart-ment Archives contain an intriguing quotation from Rykov (unfortunately
with no stated source), dated October 1922;
* Pravda, September zi, 19*2.
* £?p?ain J* ?' Lucey- founder of the Lucey Manufacturing Co., was the first
Chairman of the Committee on Standardization of Rotary Drilling Equipment,organized by the United States petroleum induitry in 1926.
* New York Timet, March 29, 1922, p. 24, cot, 1.
* October 2a, 1932.
* U.S. State Dept. Decimal File, 316-130-1201/3.
Caucasus Oil Fields—The Key to Economic Recovery 19
The one comparatively bright spot in Russia is the petroleum industry,
and this is due largely to the fact that a number of American workers
have been brought into the oil fields to superintend their operation. 10
MAP 2-1
FOREIGN OIL DRILLING CONCESSIONS IN THE CAUCASUS, 1921-8
SCALE MILESM 100 200 300 4QC
IRAQ/
PERSIA
Legend: j. British Petroleum Co. Ltd., Gouria concession {1923, Type I)
2. International Barnsdall Corp., Baku concession (iQ2t-2, Type III)
3. Duverger Baku concession (1923, Type I)
4. Duverger Emba concession {1923, Type II)
5. Societa Minere Italo-Belge di Georgia, Shirak concession (1913, Type I)
6. F. Storens concession in Busachi (JQ2S. Type I)
/bid., 316-107-1167.
20 Western Technology and Soviet Economic Development, 1917-1930
In September 1922, two extensive agreements w ere signed by Serebrovsky,
representing Azneft, and Mason Day, president of the International Barnsdall
Corporation, a New York-based oil company. 11 Barnsdall agreed to drill for
oil in the 'Baku district in the Balakhani oil-field arei (sic)'ll within an area of
400 dessiatins, or 1,080 acres. The work was to consist of deepening old oil
wells and drilling new wells under the supervision of a mixed commission
containing both Soviet and American members. The maximum depth of
these wells was to be 450 sazhens (3,150 feet) with a starting diameter of at
least zo inches and a finishing diameter of not less than 4 inches. Barnsdall
agreed to import tools and equipment for the simultaneous drilling of 20 wells
;
and to drill at least 10,000 feet in the first year, no less than 20,000 in the
second, and no less than 30,000 annually thereafter. Electric power, derricks,
water, clay, timber, cement, and workshops (without equipment) were to be
supplied by Azneft.
Barnsdall imported equipment at its own risk, with cost plus 5 percent to be
repaid by Azneft on arrival at the drilling site. Azneft had the option of paying
in either gold rubles or oil and oil products at market price. Each oil well
drilled was paid for on a schedule based on 80,000 gold rubles per each sazhen
(7 feet) drilled for the first 100 feet in each hole, and 10,000 gold rubles for
each additional sazhen. As in the case of the equipment, payment could be
made either in gold rubles or in oil or oil products, at the option of Azneft.
A royalty of 20 percent in oil was paid to Barnsdall on either new or deepened
wells, and the term of the agreement was set at fifteen and a half yeais.
The second Azneft-Barnsdall agreement was an oil-well-pumping contract
underwhich International Barnsdall undertook to install modern pumps in both
shut-down and watered wells and in new wells drilled under the first contract.
There was a specific requirement in the pumping contract for electrical deep
pumps to be installed in all wells except fountains, gushers, and those requir-
ing air-lift. During the first year, sufficient equipment was to be imported byBarnsdall to develop deep pumping in a minimum of 40 wells, with a further
100 pumps to follow each year for the 1 5-year term of the agreement. Electrical
power was to be supplied free by Azneft.
No payment was made by Azneft for the pumping equipment, which was
to pass to the Soviets at the expiration of the agreement. A royalty payment
of 15 percent of the gross crude output of each well was assigned to Inter-
national Barnsdall, with free tank storage at Baku.
11 The Barnsdall agreements were not published. Mason Day, after some pressure,supplied a copy to the U.S. State Dept. This copy is now in the Archives, and is
the basis for this section. Mason Day later joined forces with Sinclair and wasconvicted in the Teapot Dome oil scandal. Barnsdall financing was by Blair andCo., of New York.
» U.S. State Dept. Decimal File 316-137-51°.
Caucasus Oil Fields—The Key to Economic Recovery 21
OIL FIELD PROPERTIES COVERED BY THEBARNSDALL AGREEMENT
To assess the impact of Western technology on the development of the
Caucasus oil industry, it is necessary to determine the areas of the Baku fields
covered by the Barnsdall agreements. The technological impact was in two
forms: the direct oil-field work undertaken by Barnsdall engineers and crews;
and the installation by Azneft engineers of equipment supplied by the Lucey
Manufacturing Company, Metropolitan-Vickers, Ltd., and other companies
and only partly under the technical supervision of Barnsdall.13
The geographical area to be covered by the agreement was deliberately
obscured not only to the Western public but also to the U.S. State Department.
There were major discrepancies in the statements of Mason Day and the
Soviet press concerning the actual area placed under development.
The property rights of the prerevolutionary owners and lessees of Baku
oil lands were in question, and the probability existed that these claimants
would restrict Barnsdall and other Western company operations by legal
action. It was therefore important for the U.S.S.R. to convey the impression
that all Barnsdall work was being done on land formerly owned by the Crown,
so that former private owners and lessees would have no cause for injunctive
action in Western courts.
The contract clearly states that the area covered by the first, or drilling,
contract, was 400 dessiatins in the Balakhani area of the Baku oil fields, with
the option of extension to Sabunchi and Ramuni. A dessiatin is 2.7 acres.
In talks with the U.S. State Department, Day used a conversion factor of
1 dcssiatin=7/8 acre, and Barnsdall press releases talked about 400 acres
rather than 400 dessiatins. In other words, there was a deliberate attempt on
the part of Barnsdall to make the area covered by the agreement appear
considerably smaller.
The area covered was, in fact, 1,080 acres, and as the location of previously
privately-owned and leased property in the Balakhani section was known, it
was concluded by the U.S. State Department that:
There can be no doubt . . . that the vested rights of private owners or
lessees will be infringed on from the very outset under cither the first or
the second contract.1*
" International Barnsdall obtained Si. 5 million credit in the United States from
Lucey Manufacturing for oil-field equipment. In addition, Lucey obtained a
substantial order directly from Azneft. Hill Electrical Drills, EMSCO (Los
Angeles), and Metropolitan-Vickers, among others, secured significant orders for
oil-field equipment. [W. A. Otis, The Petroleum Industry of Russia, U.S. Dept.
of Commerce, Trade Information Bulletin No. *63, p. 24. Also EMSCO Derrick
and Equipment Company (Los Angeles: Banks Huntley, 1029). PP> 26-7].
" Memorandum, Durand to Herter, February 1923 (316-137-586).
22 Western Technology and Soviet Economic Development, igij-ig^o
The substance of the State Department assessment was that it would be
difficult, if not impossible, to find 400 dessiatins not previously operated or
leased by private persons or companies.
A comparison of the four sections of the Baku oil field supports this
position.
Table 2-2 DISTRIBUTION OF CRUDE OIL PRODUCTION ANDPROPERTY OWNERSHIP IN THE BAKU OIL FIELDS, 1915
Baku Oil Field Percent Total Percent Previously
Section Production Owned or Leased
Balakhani
Caucasus Oil Fields—The Key to Economic Recovery 23
The agreement was intended to cover the whole of the Baku field. Both the
Soviets and International Barnsdall, considered it prudent to misrepresent the
area covered by the contract. 11
EXTENT OF BARNSDALL DRILLING
Barnsdall was required to undertake a minimum of 10,000 feet of drilling
in the first year of operations and additional amounts in subsequent years,
under the direction of a mixed committee, which included Azneft representa-
tives. There is substantial reason to believe that Barnsdall undertook more
drilling than the minimum required by the contract, which again may have
camouflaged a private agreement. There was certainly substantial financial
incentive for Barnsdall to exceed the minimum.
Analysis of drilling reports suggests a rate in excess of 180,000 feet per year.
In the month after the arrival of the first group of engineers (June 1923),
Barnsdall put down 15 wells in the Kirmaku area of northwest Balakhani. 18
Given an average depth of 1 ,000 feet for Baku wells, this equalled 1 5,000 feet a
month, or 180,000 feet a year. 1* Also, Barnsdall had six American engineers
in Baku, a number hardly warranted by a drilling rate of only 10,000 feet a
year. One drilling agreement was in operation for two years. International
Barnsdall was 'driven out' of the U.S.S.R. in 1924 after incurring 'very impor-
tant material losses.'20 Louis Fischer says the agreement lapsed 'by mutual
consent' in 1924.21
CHANGES IN DRILLING TECHNOLOGY AT BAKU
Although the exact area and footage drilled will probably never be known,
a complete change in Soviet drilling technology has been recorded. The old
labor-intensive percussion methods gave way completely to the United States-
developed rotary drilling techniques. This changeover is summarized in
table 2-3.
" Morris, Chief of the Petroleum Division, U.S. Dept. of Commerce, made the
succinct comment, ' ... the Russians knew exactly what they were doing whenthey assigned Barnsdall's territory' (316-137-584). Lucey Manufacturing later
confirmed to the State Dept. that Barnsdall was working throughout the Baku area
irrespective of former ownership (316-137-745).
" Otis, op. cit., p. 25.
11 This would be equivalent to sinking iSo wells averaging 1,000 feet each. Scheffer
noted that 300 wells were put down in Baku between October 1923 and October
1924 [Paul Scheffer, Seven Years in Soviet Russia, (New York: Macmillan, 1932),
p. 94J." W. Kokovtzoff, 'Le gouvemement des Soviets et les concessions aux itrangers,'
Revue des Deux Mondes, XXXV Sept. 1, 1926, 158-81.
« OH Imperialism (New York: International, 1926), p. 169.
24 Western Technology and Soviet Economic Development, igiy-ig^o
There was no substantial rotary drilling in the U.S.S.R. before 1923.sa
However, in the five years following, the percussion method was almost
completely abandoned and the American rotary method substituted. By 1928
the percussion method accounted for only z percent of drilling (against 100
percent in 1913) and rotary drilling accounted for 81 percent (against none in
1923), The cable technique had brief use but was abandoned in favor of
rotary methods. It should be noted that the Soviet-developed turbine drill had
an early but insignificant utilization, and did not gain wide acceptance until
later in the 19303."
Table 2-3 OIL-DRILLING TECHNIQUE,PERCENTAGE UTILIZATION BY AZNEFT (BAKU), 1913-28
„ OIL-DRILLING TECHNIQUE
Rotary Cable Percussion Turbine
1913
Caucasus Oil Fields—The Key to Economic Recovery 25
with a maximum figure of 640 meters. The same source suggests that a 600-
700 meter hole required in 1927 only 70-80 days for drilling, whereas under
the old drilling system it had required one year. In terms of cost, the advantages
were just as significant. In one year, from 1923-4 to 1925-6, drilling costs
fell from 413 rubles to 218 rubles per meter, and the number of workers
required for one drill-month of operations fell from 49 to 30.25
CHANGES IN PUMPING TECHNOLOGY ANDOIL FIELD ELECTRIFICATION
There was a parallel revolution in pumping technology. In 1922 oil-well
pumping was undertaken by bailing (a primitive, inefficient technique) or
by air-lift. About 10 percent of production was free-flowing and did not
require mechanical assistance. A small portion was collected by surface
methods. There was no deep-well electrical pumping in 1922, and no oil
field pumps were produced in the U.S.S.R. until the initiation of the
Maschinenbrau A-G technical-assistance agreement with Mosmash,SB in the
mid-1 920s.
Table 2-4 CRUDE OIL EXTRACTION TECHNOLOGYIN BAKU OIL FIELDS, 1921-2 AND 1927-8
Method of Extraction 1^21-2 igiy-S
Bailing \ 49-3% °-°%Air-lift / 40-3 27-0
Gushers 9,8 26.0
Pumping \ 0.0 44. S
Surface JNEW
_0.6 _ ij
1Q0.0% 100.0%
Source: 1921-2, Otis, The Petroleum Industry of Russia, p. 19
1927-8, U.S. State Dept., Decimal File, 316-137-1130.
On the other hand, electrical deep-pumping was at this time in general use
in the United S tatcs and elsewhere and was considerably cheaper than the more
primitive extraction methods. The second part of the Barnsdall contract
required installation of deep-well pumps in Barnsdall-developed wells; pumps
were also purchased from the United States and Germany for Soviet opera-
tions. Acquisition of pumps was so rapid that four years after the signing of
the Barnsdall contract, 45 percent of Baku crude oil was being pumped rather
than bailed.
15 Le Pitrole Russe (Paris: Editions de la Representation Conwierciale de l'U.R.S.S.en France) No. 6 (1927), p. 6.
** See page 35.
26 Western Technology and Soviet Economic Development, 1917-1930
The change in extraction technology in the Baku fields is summarized in
table 2-4. Bailing declined from 49.3 percent in 1921-2 to zero in 1927-8,
while pumping increased from zero in 192 1-3 to 44.8 percent of output in
1927-8, The other significant change was the increase in production from
free-flowing wells (gushers) from 9.8 percent to 26.0 percent, reflecting the
increase in new well-drilling activity by International Barnsdall, in Type I
concessions, and in newly equipped and trained drilling crews of Azneft. In
absolute numbers, there were only 38 wells equipped with modern pumps in
May 1924; one year later, in July 1925, over 500 wells had modern pumps."The general operation of the Baku oil fields was electrified in the same
period; by September 1928, of 3,312 oil wells in operation, about 3,212 (97
percent) had pumping powered by electricity, 3 by steam engines, and g6 by
gasoline engines. This compares to only 30 percent electrification in 1913.
The oil-field electrification program, including the supply of some switch-
gear and other equipment, was undertaken by Metropolitan-Vickers, Ltd.
(United Kingdom), a subsidiary of Westinghouse,28 while between 1927 and
1930.
. . . large quantities of General Electric products began to furnish the
motive power for drilling oil wells and for pumping oil in the rich fields
of Baku and Grozny.**
Details in Le Pitrole Russe suggest that the electrification program was also
concentrated into a very few years and in old wells involved a substitution of
electric for gasoline and steam engines rather than just the introduction of
electric motors.
Table 2-5 ELECTRIFICATION OF THE GROZNY OILFIELDS, 1923-7
Number 0/ Engines (by Type) on Oct. I
Caucasus Oil Fields—The Key to Economic Recovery 27
In Grozny, for example, the number of oil-field motors increased from 258
in 1923 to 448 in 1927. Electric motors formed only 29 percent of the total
in 1923 but 88 percent in 1927. During the same period steam engines were
virtually eliminated and the number of gasoline engines reduced by almost
half.
The same change took place in Baku. At the beginning of 1925-6 there were
1,821 electric and 175 steam engines in Baku. By August 1927 there were
3,810 electric motors and only 27 steam engines.
This technological substitution greatly reduced the cost of producing oil.
In 1913 the Baku fields used 1.3 million tons of crude oil (about 15 percent
of the total produced) as fuel in the oil fields. By September 1925 this total
had fallen to 8.4 percent; and by July 1927 to 3.9 percent. In brief, the
substitution of electricity for oil reduced operating costs and also released
considerable quantities of crude oil for export.
This export of Western technology—primarily American—was first con-
centrated in the Baku fields, and later in the Grozneft and Embaneft regions.
The lag in regional application is supported by the statistics. In the Azneft
field 36 percent of the drilling was done by the rotary method in 1924, but a
comparable percentage (35 percent) was not attained by Grozneft until 1927.
Whereas Azneft had 54 percent rotary drilling in 1925, Grozneft did not
attain this percentage until 1928.
Neither Grozny nor Emba had specific technical-assistance contracts for
crude oil production. Their production problems, much less acute, were over-
shadowed by those of transportation and marketing. Consequently the three-
year transfer kg was not of major importance.
Although the first, International Barnsdall was not the only vehicle for
technological transfer in the oil fields. This transfer was designed to modernize
the most prolific of the oil fields (which was also the field with the most
serious production problems) by developing new wells and instituting a
rational organizational and technical structure for deepening old wells. The
transfer was a complete success.
THE 'PURE' OIL CONCESSIONS
Another transfer vehicle used, outside the Baku field, was the pure (Type I)
concession. The fields offered for pure concessions were more remote or
smaller, or in less-developed areas. Although Baku, Grozny, and Emba were
offered on this basis, there were no serious negotiations for pure concessions
after 1925. A typical offering for a pure concession was the Cheleken Island
field in the Caspian Sea, As early as 1830, there were more than 3,000 hand-
dug oil wells up to 250 feet deep, and production continued until the Rcvolu'-
28 Western Technology and Soviet Economic Development, igi^-igjo
tion. By 1923 only 12 wells were still producing; the rest were inoperative.The field was then offered for concession." There were at least five operatingconcessions of this type between 1922 and 1928.31
In February 1925 the Chief Concessions Committee concluded an agree-ment with F. Storens, a Norwegian firm, for the industrial and mineralexploitation of the Busachi Peninsula in the Caspian Sea. The area covered12,000 square verets on the eastern part of the peninsula. Storens was requiredto make an expenditure of 800,000 rubles on exploration work within fiveyears. The life of the concession was set at 40 years, although the Sovietgovernment had the option to buy out Storens in 30 years. All equipmentwas imported duty-free, but unstated dues and fees were payable, including
5 percent of any metals output and 15 percent of any oil produced (50 percentif a gusher). A deposit of 50,000 rubles was accepted as a guaranty of theexecution of the contract.3' MAt the end of 1923, a concession agreement was concluded between the
Societa Minere Italo-Belge di Georgia of Turin, Italy, and the Chief Conces-sions Committee, under which the company agreed to conduct oil explorationon 50,000 acres of the Shirak Steppes near Tiflis. The Societa was given theright to explore and drill for three years, and production concessions couldbe subsequently granted for 30 years, the U.S.S.R reserving the right to buyout the undertaking after zo years. During the exploration period the granteespaid the Soviet government a royalty for each dessiatin explored. At the end ofthe exploration period, the company was required to make a report and handover equipment and all oil produced to the Soviets.
The company was also required to pay a percentage on gross product, payexport taxes, and comply with Soviet law on taxation and labor. At the end of
"tencemorf'"V"
N°' ** (December I5'I9*7): "Cheleken Oil Field proposed for
*l
£hMV"£re Stortns
'Italo-Belge, British Petroleum, the Japanese Sakhalin, and theFrench Duverger group. Others were rumored. At one time the Chief Concessions
U>mmittee was considering 62 applications for oil concessions, but little has beenrecorded concerning the.r operation. The Comparre Oil Company of New Jerseywas formed by W. Averell Harriman specifically for a Baku oil concession.
ft^JLL'S"^ «>mpany) concessions were not common in oi! operations; apartfrom the Dutch-Soviet trading company mentioned in the text, there was only
hvU£™« d *e Turkestan <*• for Raw Materials Preparation, jointly operatedby Sorgagen A-G (Germany) and Neftsyndikat (316-111-819).
" Ekanomuhtskaya Zkixn, No. 33, February 10, 1925.'One of the most important and largest concessions granted is that for mining andoil concessions given to the Norwegian Company Storen. . . . According to thegeological reports, th» area 13 very rich in oil. Considering that it has never beenworked before and operations will be more difficult than usual, the concessionairewas given many special privileges.' [L. Segal and A. A. Santalov, Soviet Union Year
^ZZLui^t™^ c'ien/^d t,nwn)
' p ",6^ According to Karty KmUet.nonnykh ob ektov S.S.S.R. (Moscow: 1926) the Busachi Peninsula oU depositswere known but not worked or delineated at this time.
Caucasus Oil Fields—The Key to Economic Recovery 29
the concession period, the entire property reverted to the Soviets without
compensation. A bond was required from the grantees, who were also required
to introduce the latest methods of drilling and oil production. 31
An extension of the agreement was applied for and granted in September
1926. Preliminary work was completed, and the area for development was
increased from the original 415 to 1,515 hectares. The extension was granted
with the stipulation that the company sink four oil wells, each at least 500
meters deep.35
In 1923 an agreement was signed between the Gouria Petroleum Corpora-
tion, Ltd. (United Kingdom), and the Chief Concessions Committee covering
the development and exploitation of 1,100 square miles in Gouria, on the
Black Sea, between Poti and Batum. A 40-year concession stipulated that
rental payments and part of the production were to be assigned to the Soviets,
who also had an option to purchase the whole output."
The Duverger group (France) obtained oil concessions in 1923 in both the
Baku and the Emba fields. The lease of 'state' lands in Baku was subject to
an annual percentage of profits or oil payable to the U.S.S.R. The conces-
sionaires had full management control. The Emba concession was a Type II
mixed company arrangement for exploitation of the fields between Samar and
Tashkent. The initial capitalization required payment of five million francs.37
OIL DEVELOPMENT IN THE SOVIET FAR EAST 38
Protocol B of the January 1925 convention between the U.S.S.R. and Japan
contained the conditions under which petroleum and coal concessions were
granted to Japan in North Sakhalin. In effect, these replaced the 1922 Sinclair
Exploration Company concessions, cancelled by the U.S.S.R.
The petroleum concessions gave the Northern Sakhalin Petroleum Com-pany (Kita Sagaren Sekio Kigio Koumiay, succeeded by Kita Karafuto Sekio
Kabushiki Kasha) the exclusive right to explore and exploit half of the two
known oil fields for a period of forty-five years. The other half of each field
remained in the hands of the Soviets. In addition to the original area of 2,200
dessiatins, a further area was later granted for exploration work, on the under-
" Corriere Diplomatka e Consolare, February 10, 1924, and Ekonomicheskaya Zhian,No. 62, December 13, 1923. Oil seepages had been known in the area for manyyears, but prcrevolutionary exploration had not been profitable.
" U.S. Consulate in Riga, Report, September 10, 1926 (316-137-991/3),
" 'The concessionaire company is extremely reticent concerning the details of the
arrangement and the London press has . . . referred to the matter only in a cursoryway.' (U.S. Embassy in London, Report No. 14817, March 23, 1923.)
n New York Times, July 19, 1923, p. 23, col. 2.
" This section is based on evidence in the U.S. State Department Decimal File
(Rolls 137, 176 and 177 of Microcopy 316),
30 Western Technology and Soviet Economic Development, igiy-xg^o
standing that half of any oil field discovered was to be transferred to the
U.S.S.R. for Soviet operation. A royalty was payable on all output, rangingfrom 5 percent for production not in excess of 30,000 tons per year up to 15percent for production in excess of 630,000 tons. A royalty of from 15 to 45percent was payable on gushers depending on yield. For natural gas theroyalty ranged from 10 to 35 percent, depending on the composition of thegas. Foreign skilled labor was allowed to the extent of 50 percent of the total
labor force and unskilled to 25 percent of labor force. All disputes weresubject to the law and courts of the U.S.S.R.
Soviet Far Eastern oil development was completely dependent on Japaneseconcessions and technical assistance. Beginning in 1925, the Japanese beganexploring and developing the extensive oil strata of North Sakhalin.
Table 2-6 NORTH SAKHALIN OIL PRODUCTION, 1926-31
Caucasus Oil Fields—The Key to Economic Recovery 3
1
the latest in Western science and technology. Schlumberger and coworkers
started working on this technique in France in 1922, and, although he was
joined by other researchers throughout the world, this group played an
essential and primary role in its development. The first use of electrical well-
logging is reported by Schlumberger from France in 1927. A company was
formed—the Sociite1
de Prospection Electrique Precedes Schlumberger—which almost immediately made a technical-assistance agreement with Azncft
to introduce electrical prospecting and subsurface techniques into the U.S.S.R.
It appears that Azneft, along with Venezuela, was used as a test field.10 By
1933 the U.S.S.R. had eighteen electrical well-logging crews in the field,
compared to four in the United States and five in Venezuela.
Azneft concluded another contract, with the Radiore Company of Los
Angeles, for technical assistance in electrical prospecting (presumably using
magnetometer and gravimetric techniques), but no further data is available. 111
Similarly, well-cementing techniques (Perkins) and core and rock bit manu-
facturing technology were introduced in the same period.
PIPELINE CONSTRUCTION, 1925-8
Production problems at Baku were, by 1924-5, well on the way to solution.
Rotary drilling and deep-well electrical pumps had revolutionized oil-field
technology. The bottleneck now became transportation: particularly the
means to move an increasing flow of crude oil to the Black Sea ports for export.
The pipeline program initiated in 1925 as the solution to this problem is an
excellent example of the intricate interlocking of foreign technologies and
skills utilized in Soviet economic development. In this sector we find TypeI, II, and III concessions with foreign firms and individuals, in addition to
the import of equipment, supplies, training skills, supervisory ability, semi-
manufactured materials, and oil-field services for cash, credit, or a share in
anticipated oil profits.
After the occupation of the Caucasus, two pipelines were available for oil
shipments. The 560 miles from Baku on the Caspian Sea to Batum on the
Black Sea were spanned by an eight-inch kerosene line built in 1905 by the
Nobel interests. Capacity was about 600,000 tons a year, but by 1921 the
line operated only at about 50 percent of capacity and was in need of substantial
overhauling. By 1922 shipments were only 22 percent of capacity, and half
*• In September 1031, the following instructions were issued to the Schlumbergerfield personnel: 'The results in Russia and Venezuela are remarkable. It has beendecided to run the SP surveys in all wells.' [American Petroleum Institute, Historyof Petroleum Engineering (New York: 1961) p. 535.] Schlumberger used electricalwell-logging at Baku as early as iozg.
n U.S.S.R. Chamber of Commerce, Economic Condition! in the U.S.S.R. (Moscow:Vneshtorgtzdat, 1931), p. 226.
32 Western Technology and Soviet Economic Development, igiy-ig^o
of Azneft oil was moving to Black Sea ports on the overcrowded, badly
maintained rail system which paralleled the pipeline.*8
Table 2-7 RUSSIAN OIL PIPELINES BEFORE 1930
Pipeline Km Diameterin inches
No. of YearsStations Completed
Service
Baku-BeturnGroiny-PetrovskTukha-KrainodarGrozny-TuapseBaku-Batum
883
Caucasus Oil Fields—The Key to Economic Recovery 33
Baku to Batum, and then to rebuild the existing 8-inch Baku-Batum pipeline.
These lines were put into construction in 1925-6 and scheduled for comple-
tion by 1928.
The construction of a pipeline may be broken into a standard sequence of
operations. Assuming that the route is surveyed and cleared, the first operation
is trenching, followed by welding and inserting the pipes, and finally by
covering them. The critical skilled functions are those of welding, trenching,
and covering. The major inputs are the steel pipe itself, welding equipment,
and skilled welding labor. Engines are required for installation at pumping
stations along the route. Table 2-8 lists these operations for the two pipe-lines
built between 1925 and 1928, together with the enterprise undertaking each
operation.
Table 2-8 SOVIET CONSTRUCTION OF THE GROZNY-TUAPSEAND BAKU-BATUM PIPELINES, 1925-8
Sequence Construction of Operation Undertaken By
1. Manufacture of line pipe German pipe mills under Russgertorg
contract*
2. Supervision of pipe transportation Otto Wolff Co.*
3. Purchase of trenching equipment Purchased in United States
4. Training of welders J. I. Allen Co. (Los Angeles)
5. Purchase of welding equipment Purchased in United States by Ragaz(Russian-American Compressed GasCo.)**
6. Welding of pipeline Ragaz**
7. Supervision of welding J. I. Allen Co. (Los Angeles)
8. Purchase of line pumping engines 9 provided by Crossley Co. (United
Kingdom) and 30 Mann engines
made by Gomza***
Sources: • See chap. 16.
•* See chap, ia,
*** Gomza had a Type III concession agreement with Mann A-G (Germany).
See chap. 10.
The 10-inch steel pipe required for the lines was bought in Germany by
Russgertorg16 on five-year credit terms. Twenty ships were required to trans-
port the total quantity of 51,000 tons of pipe from Germany to the Black Sea,
and German transportation specialists were hired by Wolff to ensure safe
arrival of the cargo at Poti, on the Black Sea.*7
n The Otto Wolff Trading Concession (Russgertorg) is covered in detail in chap. 16.
Soviet trusts were also trying to get the order for pipe, but their prices were higher
(3.85 rubles/pood versus z.71 rubles/pood), and quality was far inferior to that of
the German pipe.
" U.S. State Dept. Decimal File, 316-137-108*.
34 Western Technology and Soviet Economic DevSopment, 191J-IQ3Q
The critical task of welding the line was handled by the Russian-AmericanCompressed Gas Company (or Ragaz) a Type II concession owned jointly bythe International Oxygen Corporation of Newark, New Jersey, and Metalo-sindikat." One of the seven plants manufacturing compressed gases establishedby Ragaa was at Baku and produced the large quantities of welding gasesrequired for construction. The $100,000 worth of welding and electrical
equipment necessary for this operation was purchased by Ragaz in the UnitedStates." Automatic thyratron and ignition welding equipment was later
manufactured in the U.S.S.R. with the technical assistance of General Elec-tric." The 150 Russian welders were trained by the J. I. Allen Company ofLos Angeles. The latter then supervised work on the site under the generalcontract supervision of Ragaz.81 It does not appear that either of the twospecial schools established by Ragaz for the training of welders was used forthe pipeline welders. The trenching equipment was purchased in the UnitedStates."
Table 2-9 COMPARATIVE PRICE AND DELIVERY SCHEDULESFOR 300-HP DIESEL ENGINES FOR BAKU-BATUM PIPELINE
Germany Rustia (Gomza)
Delivery 8 within 6 months 8 within 14 monthsAll within 18 months All within 27 months
Price 87 rubles per hp. 180-186 rubles per hp.
Source: Adapted from Confidential Report No. S4«9 of Polish Consul General. TiflisMay 25, 1928.
Azneft wanted to purchase all pumping engines for the line stations fromabroad and cited lower costs to support its case. A comparison between therelevant German and Russian offers is summarized in table a-a ; Azneft wasinstructed by Gosplan and Vesenkha, after nine engines had been ordered inthe United Kingdom, to purchase the balance of thirty from Gomza (theSoviet State Machine Building Trust).
Thirty Mann-type 300 horsepower diesel engines were finally supplied bythe Gomza works and nine by the Crossley Company (United Kingdom).The pumps were supplied by the Moscow machine-building trust, built under
•* The concession agreement between Metalosindikat and the International OxyeenUlrp. was signed in January 1926 and is discussed in detail below,
" Amtorg, op. tit., Ill, No. 14-15 (August 1, iga7).*' Monogram, November 1943.11 New York Timet, April 9, 1918, p. s , col. a.
» U.S. State Dept, Decimal File, 316-137-1082.
Caucasus Oil Fields—The Key to Economic Recovery 35
license and the technical supervision of German companies, operating under
Type III concession agreements.5*
REFINERY CONSTRUCTION"
Prerevolutionary refineries were small units, located primarily at Baku and
producing fuel oil, kerosene, and lubricating oils.
The Soviet objective of utilizing crude oil as a means to generate foreign
exchange for industrial development required a different approach to refining.
Refining had to produce those oil products in demand in the Western world,
at a cost reasonably close to that of Western refineries. There was no refinery
technology within Russia in the 1920s to design plants of this type;65 this
technology could be found only in Germany and in the United States. There
were no cracking units in the U.S.S.R. before 1928. Of nineteen refineries and
cracking plants built between the Revolution and 1930, only one had some
units manufactured in the U.S.S.R. and even that was under British technical
supervision, using the United States Winkler-Koch process.
Although the first United States patent had been granted for a cracking
process in i860 (United States Patent No. 28,246, to L. Atwood), it is usually
accepted that 1926 was the year in which it was universally recognized that
gasoline from the cracking process was better than that produced by straight
distillation.68 The United States was far ahead of foreign producers in 1926,
with more than 2,500 cracking process patents issued, some 26 processes in
*' Both the state machine-building trust (Gomza) and the Moscow machine-buildingtrust (Mosmash) had technical-assistance agreements with German companies.Gomza had an agreement with Maschinenfabrik Augsburg-Nurnberg A-G to buildunder license and with technical assistance both two- and four-cycle motors, withand without compressors, and Mann-type diesel motors. Mosmash was formedfrom nine large prerevolutionary machine-building works in Moscow, includingthose of the Bromley Brothers, Danhauer and Kaiser, and other Russian, British,
French, and German companies. Mosmash had several Type III technical-assist-ance agreements, and one with Maschinenbrau A-G of Saarbrucken included themanufacture of pumps. See chap. 10 for details.
" The refinery section is based extensively on the monthly Le Pdtrole Rime (a supple-ment to La Vie Economiqut des Soviets), published by the Neftsyndikat representa-tive in Paris between 1027 and 1930. Although the principal objective of thejournal was to further Soviet penetration of Western oil markets, the 22 issuespublished contain a wealth of detail on Soviet oil-field development and refineryconstruction. The only complete set in the United States is in the Hoover Institution,Stanford University.
" A. sample examination of Neftianae Khozaistvo, a Soviet monthly devoted to theoil industry, for ig28 suggests that the problems receiving research attention werethose of applying foreign technology to the U.S.S.R., the examination of domesticoil deposits, and the structure of world oil markets. Nothing, except the develop-ment turbine drill, suggests any Soviet contribution to World oil technology.
" Cracking is a process of breaking down and rearranging oil molecules by hightemperatures and pressures. The older straight-run distillationprocess could produceonly a limited amount of gasoline, but cracking enables fuel oil, for example, to beconverted into gasoline.
36 Western Technology and Soviet Economic Development, 1917-1930
commercial operation, and another 28 in experimental or demonstration pilot
plants. There was an enormous American investment in these processes—not
only in those utilized commercially but also in those that fell by the wayside.
Russian crudes have gasoline fractions running only 5-10 percent, but the
gas-oil fractions are greater, averaging 35-40 percent; consequently cracking
is very important for the Soviet petroleum industry. Until the installation of
the refinery complexes in 1927-8, only straight-run distillation was used, and
this resulted in both a small total production of gasoline and low recovery
percentages. To increase both production and recovery percentages, some
form of cracking process was vital.
Exports of crude oil had begun again in 1922, and in 1926 an extensive
program of refinery and cracking plant construction was begun to upgrade
the products exported. Two locations on the Black Sea were selected (Batum
and Tuapse) and two in the oilfields (Baku and Grozny) as initial sites for
refinery complexes. These complexes were built entirely by Western com-
panies, with the exception ofsome minor equipment and the partial duplication
of a Baku refineiy by Azneft in 1929.
Batum, on the Black Sea, was the site of the largest development. Three
petroleum refineries, two cracking plants, an asphalt plant, and a kerosene
plant were built between 1923 and 1930.
In April 1927 construction was begun on the first petroleum refinery. This
utilized the latest United States technology, with a capacity of 1,600,000 tons
a year of petroleum products. At the same time two other refineries, duplicates
of the first, were placed on order.
The first Batum refinery was built by Craig, Ltd. (United Kingdom), for
ten million rubles, advanced on six-year credit terms." The other two units,
built by German companies (Heckmann, Wilke and Pintsch) were financed
from a 1926 revolving credit of 300 million marks from the German govern-
ment. A large part of the amount was used for oil-field equipment. These
units were financed on four-year credit terms.M
The units listed in table 2-10 were fabricated abroad and erected in the
U.S.S.R. by Western engineers, some of whom worked on behalf of their
own companies and some of whom were employed by Azneft as consultants.
Between 1926 and 1929 more than $20 million was expended in the United
States alone for oil-field and refinery equipment—by far the greater part on
long-term credits.8* A substantial portion of the 1925-6 German credits was
also used for oil-field and refinery equipment. The Batum petroleum refiner-
ies utilized the latest United States continuous sulphuric acid process,
»' U.S. State Dept. Decimal File, 31 6-1 37-1 031.*• U.S. State Dept. Decimal File, 3 1&-1 37-980,'* Alcan Hircch, op. at., p. 15a.
Caucasus OH Fields—The Key to Economic Recovery 37
Table 2-10 CONSTRUCTION OF THEBATUM REFINERY COMPLEX, 1927-30
Unit Comtruaion by Capacity*
ZTl T, 7! (-,«;„ rv 1 ,600,000 tons per year crudeRefinery I (.»8) ^^Kingdorn) gi,
Refinery II (.9*8) Heckmann *&>*«> «°™ P» ?™ "ude(Germany) °"
Refinery III (,9*9) Wilkc, Pintsch I.***™ «»» P« *ear crude
(Germany) °"
Cracking Plant I Winkler-Koch system Not avadable
/jn2gj (manufactured by Graver Corp.)
Cracking Plant II Winkler-Koch system Not available
fioio) (manufactured by Graver Corp.)
Kerosene Plant Standard Oil Co. ISo.ooo lone tons per year
(1027) of New York
Sources: Le Parole Russe, various issues, iQ27>
U.S. State Dept. Archives.
Amtorg, op. at. ,
* Refinery capacities arc approximate only; several figures exist for each unit. These
are maximal. Columns .and 2 are confirmed by several sources.
although built by British and German companies." The four gasoline cracking
units were built by the Graver Corporation of Chicago as part of an order
for ten units valued at $2 million and supplied on long-term credit for instal-
lation at Batum, Tuapse, and Yaroslavl. Graver also had a technical-assistance
agreement with the U.S.S.R. which covered petroleum refineries.8 The
cracking units utilized the Winkler-Koch and Cross systems of cracking and
the Winkler-Koch Engineering Company, of Wichita, Kansas, also had a
technical-assistance agreement with the U.S.S.R. to facilitate the transfer of
its cracking technology.
The 150,000-ton kerosene plant was built tn 1927 by the Standard Oil
Company of New York and then leased back by Awicft. Standard operated
the plant under a three-year, Type II contract, loading company tankers
with kerosene at Batum for shipment to Middle East and Far East markets.
» Azneft'
. . a choisi le precede americain de raffinage du petrolc par J'acide
futfurique, en L melangeant d'une facon r*"™' P^oT^ cu'iv'eurs.' [Le Petrol* Russe, No. z (Oct. 5, i<W), P- J.5-] A so, Amtorg op. en. iv,
No, (January 1, 1929), and Ehonomickeskaya Zkizn, No. t6i, July 17. <9*9-
«i The usual claims of prior discovery were made for the cracking process; . . .
the
emmen" cons ™ctor Choukhov" discovered the process long before the Americans
Why the Choukhov process was not utilized is left unanswered. (U Peirole Russe,
No 12 Msy s 1 028, p» 18.)
« At least ten photographs were traced of a Standard Oil of New York unit at Datum.
Tries* were dated between IQ*7 and l«°, but the unit was desenbed vanously as a
refinery! kerosene plant, fuel oil plant, etc. It is presumed, b«t ™t known w. h
certainty, that there was only one Standard umt-a kerosene plant. While Standard
38 Western Technology and Soviet Economic Development, iqij-iqjo
This was the first United States investment in Russia since the Revolution.
There is no evidence that Azneft constructed or fabricated parts for any of
the Batum refineries; there was complete reliance on imported technology,
supervision, and equipment.
Tuapse, on the Black Sea north of Batum, was the site of the second
refinery complex oriented to Western oil products markets. This complex
was run by Grozneft, the Grozny oil trust.
Table 2-1
1
CONSTRUCTION OF THETUAPSE REFINERY COMPLEX, 1927-30
Unit Construction by Capacity
Refinery I Heckmann* 1,000,000 tons per year
Refinery II Heclcmann* 1,000,000 tons per yearCracking Plant I Cross system (Graver Corp.) Not available
Cracking Plant II Cross system (Graver Corp.) Not available
Source: Le Pitrote Rusie, various issue*, 1927-9.• The refinery construction is known to be German, but the firm is not preciselyknown; it was probably Heckmann.
The equipment for the refineries at Tuapse came from Germany, and the
two cracking units were manufactured and installed by the Graver Corpora-
tion, of Chicago. The Burrell-Mase Engineering Company (United States)
reorganized, modernized, and expanded the overall gas and petroleum produc-
tion and refining facilities for Grozneft, and between 10 and 20 Burrell-Mase
engineers were occupied with the project for a period of two years. Oneinteresting comparison between refinery construction at Tuapse and Batuminvolves the length oftime required to build a refinery under Soviet conditions,
BurreU points out that a refinery which could be built in five months in the
United States took two years to build in the Soviet Union under Grozneft.*3
On the other hand, a Standard Oil construction engineer, Tompkins, building
the Standard-leased Batum refinery for Azneft, is quoted as saying that the
company was able to complete construction in only three months 'in light of
the complete assistance of Soviet authorities.'** This comparison supports
of New York was thus aiding Soviet development at Batum, Soviet agents werebusy in the Far East endeavoring to undermine its market position, with the lavishuse of bribery and threats. [Naval Intelligence Report No. 159, May n, 1938(316-137-1084/s).]
George A. BurreU, An American Engineer Looks at Russia (Boston: Stratford, n.d.),
J).
269. BurreU has 37 publications in the field of gas and petroleum engineeringisted in the Library of Congress card catalog, and was an outstanding expert inthe field.
Amtorg, op. «'(., II, No. iS (September 15, 1917), 5.
Caucasus Oil Fields—The Key to Economic Recovery 39
the observation made elsewhere that A2neft under Serebrovsky was a far
more efficient concern in this period than either Grozneft or Embaneft.
Serebrovsky was later shifted by Stalin to the gold trusts, to repeat his
Azncft success
Foreign equipment was used throughout these complexes, including even
American fire extinguisher equipment and such auxiliary facilities as machine
shops." Electrical equipment for refineries, i.e., pumps, compressors, and
control apparatus, was largely supplied by the General Electric Company.68
Table 2-12 CONSTRUCTION OF THESOVIET INLAND REFINERIES, 1927-30
Unit Constructed by Capacity
BakuRe finery I United Kingdom 470,000 tons per year
technical supervision in Baku
Cracking Plant I Winkler-Koch system —(United Kingdom)*
Cracking Plant II Winkler-Koch system —(United Kingdom)*
Heavy Oil Plant Stemschneider 3,600,000 tons per year
(Germany)
Grozny
Refinery I Borman (Germany) 365.000 tons per year
Refinery II Pintsch (Germany) 365.000 tons per year
Cracking Plant I (3 Units) 2 Dobbs (Germany); —Sakhanov & Tilitchev
(Germany)
Etaba
Vara Refinery (lubricants) Borman (Germany) 1 28,000 tons per year
Source: Lt Petrole Russe, various issues, 19*7-9.
• Probably by Viekers.
In both Tuapse and Batum other American corporations—in particular
the Foster-Wheeler Corporation of New York, E. B. Badger and Sons of
Boston, and the Winkler-Koch Corporation of Wichita—played an important
part in the design and construction of cracking units."
The inland refineries at Baku depended more on German and United
Kingdom construction aid; but two new factors are apparent. The refinery
" The only manufacturer of fire extinguisher equipment in the U.S.S.R. was the
concession Boereznsky (Lithuania).
'* Monogram, November 1943.
" The Winkler-Koch Corp. of Wichita, had a technical-assistance agreement with
Neftsyndikat for the construction of cracking plants. [American-Russian Chamber
of Commerce, Economic Handbook of the Soviet Union (New York: ^i), p. 101.]
40 Western Technology and Soviet Economic Development, 1917-1930
at Baku was partly built by Azneft under a British technical supervisor, butthe tuyeres and some of the other pipe work were built by Azneft—the onlycase of Soviet oil-field construction in that decade. In addition, the crackingplant at Grozny was partly Soviet-designed by Sakhanov and Tilitchev butconstructed by German companies. These are the same procedures noted inother industries. Soviet construction was at first limited to the simple andthe straightforward (i.e., pipework) in less strategic locations (the inlandrefineries) and then gradually moved into more complex and more importantfunctions at more important locations. Either Soviet designs were first madeabroad or prototypes were made both abroad and in the U.S.S.R., presumablyfor comparison purposes, before complete development was tackled in theU.S.S.R. However, Soviet design and technology were almost nonexistent,and such examples as we have may have been no more than the 'Sovietization'of an existing Western technology; this name-changing was typical in theelectrical equipment industry.
ACQUISITION OF FOREIGN MARKETS FORPETROLEUM PRODUCTS
The technological revolution in oil-field production, construction of newpipelines, repair of pre-Revolutionary pipelines, and the refinery constructionprogram on the Black Sea coast put the Soviets in a position to collect ontheir investments and development strategy.
Production of crude oil almost tripled from 1923 to 1928, and exportsfollowed a similar development, from 185,000 tons in 1922 to 1,9 million tonsin 1927-8. The refinery program enabled a greater proportion of oil derivatives,of higher value (especially gasoline) to be exported. Before 1923 no gasolinehad been exported, and most petroleum product exports consisted of keroseneand oils.
In 1923 almost half of Soviet oil exports consisted of kerosene, or heatingoil, which could be produced by prewar straight-run distillation refineries.
By 1928, as a result of the new refinery and cracking-unit construction pro-grams, the proportion of kerosene dropped to less than one-quarter, and gaso-line now made up more than one-quarter of total exports. There was also asignificant increase in total petroleum exports, from 430,000 tons to almost2.75 million tons—a sixfold increase, Light oil fractions figured among the1928 exports but not in 1923 exports.
In brief, table 2-13 indicates both a very substantial increase in the quantityof oil exported and an increase in the product qualky. Both factors resulteddirectly from the refinery construction program. By 1928, the value of oil
exports was 124 million rubles, or 19.1 percent of the value of all Sovietexports, and the largest single earner of foreign exchange.
Caucasus Oil Fields—The Key to Economic Recovery 4i
Table 2-13 COMPOSITION OF SOVIET OIL EXPORTS,1923 AND 1928
Product Tons'923
Percent Tons1928
Percent
Crude oil
42 Western Technology and Soviet Economic Development, 1917-1930
This breach was followed by the formation of a Dutch-Soviet mixed com-pany for the export of Soviet oil, under an agreement signed on May 11, 1923between Royal Dutch Shell and the U.S.S.R. Capital participation was 50:50,with £1.25 million sterling being subscribed. The head office was in Londonand the company sold Soviet oil abroad through exclusive dealerships. Theagreement lasted for ten years, and the company earned a 10 percent commis-sion. 70
In 1924 Royal Dutch Shell was purchasing oil via this mixed company onbehalf of Standard, the purchases being split between the two major oil
groups. This, however, presented a united front to Neftsyndicat and the tradeorganization—a front which offset the bargaining power of the Soviet trademonopoly. Since 1924 the Soviets have vehemently protested the formationof such foreign trade groups.
The first goal in the expansion of oil exports at this time was to establishtrading relations with existing distributors in each foreign market. TheStandard Oil Company handled the Near and Far East markets, and theBlue Bird Motor Company and British-Mexican Petroleum Company handledimports into the United Kingdom and cracked Soviet kerosene in the UnitedKingdom until refineries were built later in the U.S.S.R. Asiatic Petroleumbought oil for distribution in India and Ceylon. Turkey and Spain boughtlarge quantities (532,000 tons in 1928) for distribution through their govern-ment monopoly networks. A five-year agreement in 1 925 between Neftsyndicatand Bell Petrole covered delivery of Grozny crude to France.
Later, when the acceptance of Soviet petroleum had been established, theSoviets began to establish their own distribution networks. Russian OilProducts (ROP), owned jointly by Arcos and Neftsyndicat, was founded inthe United Kingdom. By 1925 ROP had established a chain of oil depots inthe United Kingdom and was engaged in extensive price warfare with existingdistributors. In the mid-i92os the Soviets canceled their agreements withGerman distributors and established their own subsidiary, the Deutsche-Russische Naptha Company, which established the Derop chain of gasolineservice stations in Germany. In Sweden, the Nordiska Bensin Aktiebolagetwas established and promptly drove prices down 30 percent to gain entryinto the market. Gradually by the end of the decade the Soviets controlledtheir own distribution networks in most of their major markets, although theystill relied on Standard Oil for distribution in the Middle and Far East, whilein Spain a mixed company arrangement with the Argus Bank of Barcelonahad exclusive rights for Spain, Portugal, and their colonies, with Neftsyndicatreceiving 25 percent of the profits and the losses. The export of petroleum
'• Hatutehblad, May u, 1913 (quoted in 316-137-844).
Caucasus Oil Fields—The Key to Economic Recovery 43
products to Persia was handled through the Persian-Azerbaidjian Naptha
Company (a subsidiary founded by Azneft) and Shark {the Russian-Persian
Import and Export Company), a Type II concession. 71
Several very large orders were placed directly by Western governments for
Soviet oil. The Italian Navy bought 150,000 tons in 1927, the French Navybought 33,300 tons in 1927, and the United States Shipping Board bought
200,000 tons—at a time when there were no official diplomatic or trade
relations between the two countries.
SUMMARY OF SOVIET OIL DEVELOPMENT, 1917-30
No new oil fields were developed in the 1920s; all the producing fields
had been developed by prerevolutionary operators. This inheritance was
intact in 1921, when the Caucasian oil fields were occupied by the Soviet
armies, but world technological advances, primarily American, put these
fields and their products at a distinct competitive disadvantage. Further, the
early Bolsheviks had no ability in oil-field operation, and production rapidly
declined by 1922-3.
Serebrovsky, Chairman of Azneft, was instrumental in focusing Soviet
attention upon foreign oil production techniques and within seven years the
Soviet oil fields were modernized: two new pipelines were completed, and
three distinct refinery complexes, comprised of nineteen major identifiable
units, had been put into operation. Exports by 1926-7 were double those of
1913-
It is overwhelmingly obvious from the preceding discussion that the im-
portation of foreign oil-field technology and administration, either directly or
by concession, was the single factor of consequence in this development.
Statements that this achievement was 'without foreign assistance and capital' 72
are obviously propagandist^ nonsense. Development of an indigenous oil
technology comparable to the contemporaneous American technique was not
a useful alternative. The only available elements for an indigenous technology
were the turbine drill and the Choukov tracking process, and these were
more or less dismissed from consideration by the Soviets.'3 The development
of domestic technology would have been costly in both time and expense,
" U,S. State Dept. Decimal File, 316-137-900." Such statements may be found in Louis Fischer, Oil Imperialism (New York:
International. 1926), p. no; and in T. Gonta, The Heroes of Grozny, Horn theSoviet Oil Industry Fulfilled the Five Year Plan in Two and a Half Years (Moscow:193a).
" The turbine drill did a small percentage of drilling ; the Choukov process has neverbeen used. The Export Control Act of 1949 forced the Soviets to develop the lessefficient turbine drill (it overheats below about 8,000 feet) and so incur some of thecosts of development.
44 Western Technology and Soviet Economic Development, xgzj-xg30
and the oil fields were in no condition to wait; they were rapidly watering,
and maintenance operations were nonexistent.
The only rational solution from the Soviet viewpoint was to introduce
American rotary drilling and electrical deep-well pumping, while continuing
the tsarist oil-field electrification program. This, toge*her with refinery com-plex construction, was implemented, except in the case of the tuyeres of one
Baku refinery, by Western firms, engineers, and consultants with Westernskills and equipment. This alternative cost far less tt»an developing an oil-
field technology from scratch. The marginal cost of supplying refining and
cracking units by Western firms to the U.S.S.R. v-a* insignificant, as the
research and development cost had already been recouped from units built
in the West. Any return in excess of direct costs was profit.
There was no domestic Russian demand for gasoline, and little for light
fractions, but there was an urgent demand for foreign exchange to finance
the industrialization program.74 With the installation t>f modern cracking
plants, penetration of Western markets became possible. This overall develop-
ment strategy was so successful that the declining petroleum industry of
1922-3 was able by 1928 to contribute 20 percent of Soviet foreign exchange,
The Soviets developed a completely up-to-date refining and cracking industry
within a few years of the United States—an industry destined to play a great
role in the Soviet industrialization drive of the early 1930s.
There was no production of automobiles or trucks in the U.S.S.R. until theimplementation of the Fiat and Ford Motor Co. agreements of 1038-0.. There werevery few imported automobiles and trucks, and no motor buses at all until after1924. The internal demand for oil products was for heating and lighting oils;
i.e., fuel oil and kerosene.
CHAPTER THREE
Coal and Anthracite Mining Industries
YEARS OF CRISIS AND STAGNATION
The most productive Russian coal fields are in the Donetz Basin (Donbas).
In 1910 these supplied more than 18 million tons of a total of 24 million tons
of coal and anthracite produced in Russia. This prerevolutionary industry
was highly labor-intensive, employing 123,000 workers in coal mines and
19,000 in anthracite pits, with little mechanical equipment apart from primitive
hand-propelled mine cars. About 4.6 million tons of coal and coke were
imported.
From the Revolutions until the mid-i920S, the coal and anthracite mining
industries endured a series of crises involving over-production, severe under-
production, bad quality, lack of skilled labor, and general technical backward-
ness. The blame for these crises was laid at a bewildering number of doors:
the Revolution, the Civil War, the Intervention, flooding of the mines,
housing shortages, food shortages, labor shortages, bad attendance and sick-
ness, lack of bread, 'central authorities,' lack of fireproof bricks, lack of
technical materials, non-payment for output, reorganization, inefficient rail-
roads, lack of shipping, technical backwardness, and non-payment of wages
all received their share of the blame.
Looking at the situation as a whole one sees two factors that stand out as
prime causes for the catastrophic crises: first, the attempt to transform a
capitalist system into a socialist system without a clear understanding of the
operation of either system ; and second, the very low level of technical and
economic knowledge of those who assumed the burden of transformation.
The causes listed in the contemporary Soviet press were generally no more
than symptoms of an imperfect transformation.
These difficulties led to a policy of concentration and a subsequent reduction
in the number of operating coal mines. In 1921 there were 1,816 coal mines
in the Donbas of which 857 (47 percent) were closed. Of the remaining 959
46 Western Technology and Soviet Economic Development, 1917-1930
mines, some 387 (or 41 percent) were leased to former operators or peasants.1
The 57a state operated shafts were reduced to aoa shafts in 1922, and after
several crises further reduced to 175 in mid- 1922 and to 36 by mid-i923.a
These 36 nationalized collieries produced 78 percent of the total Donbasoutput, 16 percent being produced by other state and railroad trusts and 6
percent by private leased coal pits. An attempt to export coal to earn foreign
exchange through an organization formed specifically for the purpose
(Exportugol) also failed.
Lack of the technical facilities to produce coal was only part of the problem.
Although the mines were not mechanized, the conveyor and mine rail equip-
ment was, according to Ekonomicheskaya Zhizn, 80 percent in order.3 Theoutput per worker was, on the other hand, miserably low; about 5 tons per
workerpa month compared to about 48 tons per worker in the United States.
This was barely sufficient to supply enough coal to keep the pits operating,
and at one point in 1921 the Donbas mines produced only enough coal for
themselves and had no surplus production for shipment. This was due partly
to the lack of mechanization and to inefficient organization, and partly to
problems created by the attempt to impose 'socialist organization' on a tech-
nically backward enterprise. Together they resulted in chaos. Average daily
shipments of coal from the Donbas dropped to 57 carloads in the summer of
1921, normally the most advantageous season for mining and transportation.
Coal was imported into the Donbas from both the United Kingdom and the
United States in 1921-3: truly a case of 'carrying coals to Newcastle.'*
From 1923 onward, efforts were made to lease more coal mine operations
and smaller pits to private individuals, artels and joint-stock companies, andan effort was made to induce foreign concessionaires into the coal regions.
UNION MINIERE AND THE DONETZ BASINCOAL MINES
The major effort in coal mine mechanization was handled under Type III
technical-assistance agreements with United States companies between 1927and 1930, but there were also a number of pure Type I concessions. Withone exception, these were on the more distant borders of the U.S.S.R.—those
areas more difficult to develop.
J P. Zuev, Ugol'nya Promyshlennost' i ee Polozhenie (Moscow: J921), p. 9.
* The Engineer, November 16, 1923, p. 5*9.* Ehmomichetkaya Zhizn, No, 66, March 21, 1924.* 'In 1870 they produced 9 million poods , . . so we have gone back to the conditions
of 50 yeare ago.* Pravda, October 28, 1921.
Coal and Anthracite Mining Industries 47
The single exception was the operation of coal mines in the Donbas by
the Union Miniere group. Before 1917 part of the Donbas output had been
controlled by a French company, Union Miniere du Sud de la Russie, whose
properties were expropriated after the Bolshevik Revolution. It was reported
Table 3-1 OPERATING FOREIGN CONCESSIONS IN THE U.S.S.R.
COAL AND ANTHRACITE MINING INDUSTRY, 1922-30*
Concession HolderCountry
of Origin
Concession
TypeWork Undertaken in U.S.S.R.
Companies
Union Miniere Group France I Production
Anglo-Russian Grumant United I Production
Co., Ltd. KingdomPolar Star Concession Unknown I Production
Kita Karafuto SekioMitsui ShakeefLena Goldnelds, Ltd.
Bryner and Company,Ltd.American Industrial
Corp.G. Warren, Inc.
Roberts & Schaefer,
Inc.
Allen & Garcia, Inc.
Stuart, James andCooke, Inc.
Thyssen A-G •
Stein A-G
GoodmanManufacturing, Inc.
Hilaturas CasablancasS.A.
American Commune
Individual consultants
J. W, Powell
T. G. Hawkins
C. Pierce
JapanJapanUnitedKingdomUnitedKingdom
UnitedStates
UnitedStates
UnitedStates
UnitedStates
UnitedStates
Germany
Germany
UnitedStates
Spain
UnitedStates
UnitedStates
UnitedStates
UnitedStates
I ProductionI ProductionI Production
I Production
II Production
II Trade
III Technicalassistance
III Technicalassistance
III Technicalassistance
III Technicalassistance
III Technicalassistance
III Technicalassistance
III Technicalassistance
Commune
III Technicalassistance
III Technicalassistance
III Technicalassistance
Opening Krivoi Rog minesOperating Spitzbergen mines
Operating coal mines Spitzber-
gen, railroad in MurmanskOpening Sakhalin coal minesOpening Sakhalin coal minesOpening Kuzbas coal mines andanthracite mines
Operating Far East coal mines(Tetiukhe)
Operating Kemerovo coal mines
Importing anthracite to UnitedStates
Reorganizing Donbas coal mines
Reorganizing Donbas coal mines
Reorganizing Donbas coal mines
Sinking shafts in Donbas coal
minesSinking shafts
Providing technical assistance onmanufacture of coal cutters
Providing technical assistance onmanufacture of coal cutters
Operating mine No. 2, Donbas
Providing assistance to
GiproshaftProviding assistance to
GiproshaftProviding assistance to
Giproshaft.
Source ; See text.
• This table contains the important concession agreements, It does not include agree-
ments for supply of equipment, which also included training and installation clauses,
such as the Krupp and Sullivan contracts for supply, installation, and operator
training for heavy coal cutters.
48 Western Technology and Soviet Economic Development, igij-ig^o
in December 1923 that an 'extremely valuable' concession to exploit the
Donetz Coal Basin had been granted to a French group, and evidence points
to the operation of these mines by Union Miniere. In the statistical annualfor 1927-8, eleven very large coal mines in Makeevka were listed as 'Union'
and two in Ekaterinovsk were listed as 'Franco-Russky.'* Given the proclivity
of the Bolsheviks to propagandize, it is unlikely these shafts would havecontinued for ten years under their prerevolutionary name except for aspecific reason. On the other hand, there was every reason for the UnionCompany to have completely obscured public knowledge of a concession.
There were some two million tsarist shares and bonds held in France, with
active representative organizations fighting for total settlement of prewar
debts. This was a parallel to the International Barnsdall situation.
THE KUZBAS PROJECT OF THE AMERICANINDUSTRIAL COLONY
This project is of more than purely historical interest ; it enables us quantita-
tively to establish the effect of United States management methods on a
backward Soviet enterprise of the early NEP period. The Kuzbas operation
counters any argument that it was lack of equipment alone, or the ravages of
the Revolution, that delayed economic development. The removal of socialist
methods of operation and substitution of profit-oriented methods, even bya group ideologically sympathetic to the Soviet 'experiment,* brought about
an immediate and significant upward change in output. Within six months of
the take-over of Kemerovo mines by American workers, output of coal, coke,
and sawmill products almost doubled; this occurred before the injection of
modern equipment.* Rutgers, director of the Kuzbas project, held that the
Soviets looked upon Kuzbas as a Soviet state enterprise run on Americanlines and 'unfortunately' needing Americans, strongly implying that counter-
revolutionary activity at least hindered Soviet development, but that Americanlabor discipline and organizational methods were required ahead of the
* V. I. Kruglyakova, op. tit., p. 175. The original report was in the New York Times,November 14, 1913. It was also announced by the Soviet Embassy in Berlin inDecember 1913 (569-3-1 50) and confirmed by the United States Consulate in Riga(569-3-155). A hint that the concession operated for at least two years is in a Times
u l u-™P°rt of MarcI> 30, »Oi6: 'Following consultation of representatives of
all the big French enterprises in Russia, among them. . . . Union Miniere du Sudde la Rustic . . .'
* 'These mine* were lying almost idle when they were taken over by the Americans... the presence of the Americans has a stimulating effect upon the Russianworkmen, there is already a tendency to increase production.' EkonomieheskayaZhisn, No, 19, January 28, 1913. The 'stimulating effect' is rather overstated, as theRussian workers were, at the least, hostile to these new foreign elements.
Coal and Anthracite Mining Industries 49
machinery itself.' A similar situation was reported from the Donbas. A group
of American miners near Youzovka nearly trebled former production.8
In early 1922 a concession agreement was concluded between the U.S.S.R.
and a group of American workers represented by Bill Haywood and an
'American Organization Committee,' formed in New York by the Society
for Technical Aid to Soviet Russia, which had the objective of persuading
American skilled workers to go to the U.S.S.R. This unit was to exploit the
'almost idle* plants of the Nadejdinsky and Kuznetsk regions. The concession
included iron ore and coal mines, forests, and auxiliary industries in Nade-
jdinsky, and the coal mines, chemical by-products plant, and supplementary
industries at Kemerovo. In addition, the unit operated brick kilns, a leather-
shoe factory at Tomsk, the Jashkinsky cement plant, Guricv Zavod (pig iron)
and other enterprises.
According to the terms of the agreement,* the group undertook to import
2,800 fully qualified workers to Kemerovo and 3,000 to Nadejdinsky. A capital
subscription was required by the Soviet government of 8100 in machinery
and Si 00 in food per worker. These were imported along with the workers.
The Committee was responsible for organizing the purchase of machinery
and raw materials abroad. The U.S.S.R. undertook to pay expenses and buy
machinery to the value of 8300,000. The total product of the concession was
the property of the U.S.S.R, but some surpluses of coal, wood, bricks, and
agricultural produce accrued to the settlers.
In January 1923, five groups of colonists arrived and began work under
skilled mining engineers. The total population ultimately reached 400 Ameri-
Table 3-2 EFFECT OF UNITED STATES MANAGEMENTIN KEMEROVO (KUZNETSK) COAL MINES, 1923
Average Output Per Month
Aug. 1, 191s to Feb. I, 1923 F'b. 1, 1923 to Aug. 1, 1923
(Soviet management) (United States management)
Coal produced 6,950 metric tons 10,657 metric tons
Coke produced 160 metric tons 288 metric tons
Sawmills 16,800 cubic feet 20,600 cubic feet
Source: Nation, August 8, 1923, p- 14&.
R. E. Kennell, 'Kuzbas: A New Pennsylvania," Notion, May 2, 1923. The American
Industrial Colony published its own journal, Kuzbas. Only issue No. 3 of Vol. I
appears to have survived in the United States (at the Hoover Institution Library,
Stanford University).
Pravda, No. 246, October 31, 1922.
Complete text is in U.S. State Dept. Decimal File, 316-111-1270.
50 Western Technology and Soviet Economic Developbient, xgij-xgjo
cans and 2,000 Russians. S. J. Rutgers was the chief ^rector; Grindler, the
chief engineer; and A. Pearson, technical director, at the Kemerovo project.
Despite local opposition from 'counterrevolutionaries,* the group took over
full management control on February 1, 1923.
The effect of introducing American skills and methods of organization was
both immediate and substantial (table 3-2). One of the first steps was to
reduce the number of employees by 20 percent and simultaneously increase
output per worker. The Colony installed three sawmills, re-equipped the coal
mines, built fifty coke ovens, new bridges, and railroads, and after a year in
operation had set up a completely autonomous industrial colony.
Those colonists (the 'White Feather Groups') who, disillusioned with the
'socialist paradise,' made efforts to leave Russia were treated harshly. It took
all winter for some to get out of Russia; they were stranded periodically and
finally reached Riga, Latvia, destitute and hungry. A graphic and moving
story by one of these colonists, a young woman, written at the request of the
the United States Consulate in Riga is in the U.S. State Department files.10
PURE CONCESSIONS IN REMOTE AREAS
The Anglo-Russian Grumant Company continued to operate its coal conces-
sion in the 'no-man's land' of Spitsbergen. Another concession was made in
1923 to the Polar Star Company to operate other mines on Spitzbergen Island
and railroads in the Murmansk area. Lena Goldfields operated a Kiselev
coal mine and two Yegushin anthracite mines (numbers 1 and 5) in Siberia
as part of its 1925 concession.
The Tetyukhe (Bryner) concession operated coal mines in the Far East,
as did Japanese concession operators. Only twenty coal mines were in operation
in the Far East in 1924; of these six were state-owned enterprises, sue operated
by Japanese concessionaires on Sakhalin Island, and one operated as a
concession by Bryner and Company near Vladivostock.11 In 1924 the state
mines in the Far East produced about 46 percent of total output of coal and
lignite while the privately operated concessions (Japanese and Bryner)
produced about 54 percent.
The two Japanese Sakhalin coal concessions granted under Protocol B of
the 1925 U.S.S.R.-Japanese convention became an important export source
later in the 1920's, their export rising from 4,000 metric tons in 1925 to
" U.S. State Dept. Decimal File, 316-110-795/801. However, the autonomousindustrial colony (AIK) at Kuzbas was not broken up until late 1927, when few of
the original American* remained (316-^08-391)-11 U.S. Embassy in Tokyo, Report 13, March 1925. This last concession is of interest
in relation to the 'arm's length hypothesis.' One of the partners was suspected of
being in the pay of the Soviets (Decimal File 861.00/11170).
Coal and Anthracite Mining Industries S 1
115,500 in 1929." However, total Far East coal and lignite output was only
about 3 percent of the total Soviet production.
In 1920 the independent Georgian government concluded an agreement
for the operation of the Tkwarozly region coal mines with the Italian company
ILVA Alti Forni e Acciaierie d'ltalia s.p.a. The Soviet government offered
ILVA a renewal of the agreement, but this was not taken up by the company.
The mines, although investigated by several commissions, remained dormant
until at least 1928.u
TECHNICAL ASSISTANCE FROM GERMANY
Pure technical-assistance (Type III) agreements for the coal mines and partic-
ularly Donugol, were sought prior to any others. In the latter half of 1925,
a commission of Ruhr industrialists and economic experts began examining
the Donbas coal mines. This commission was invited by the U.S.S.R.,
. . . because it wanted objective economists to make a report to indus-
trialists in Germany on the exact conditions in the Don district. . .
and
to confer ... on the basis for collaboration between the two countries. 1
Dr. Rechlin, a member ofthecommission, argued that sue!) collaboration was
entirely possible because the coal deposits of the two countries were similar
from the geological and physical viewpoints; consequently the same type of
coal-cutting machines could be used in the Donbas as in the Ruhr. By ig26,
Thyssen A-G and other coal-machinery-making firms in Germany were
receiving orders for equipment, and coke ovens had been ordered from Koppers
A-G in Essen. The anticipated purchase of the Rhenish-Westphalian Metal
Products and Machine Company, manufacturers of locomotives in Dussel-
dorf, by the U.S.S.R. did not materialize.
The Soviets were not completely satisfied with German techniques and in
i9a6 appointed a commission to make an extensive study of comparative coal
mining methods in Germany, France, England, and the United States. *The
result was a victory for American methods and engineers. . . .
' IS
TECHNICAL ASSISTANCE CONTRACTSWITH STUART, JAMES AND COOKE, INC.
In early 1927, Amtorg reported that American coal-mining methods and a
major emphasis on mechanization were to be adopted throughout Soviet coal
mines. Concurrently with this announcement, Charles E. Stuart, of Stuart,
" Amtorg, op. at., V, 354; and Times (London), January 11, 19*6. The agreement on
Sakhalin coal concessions is in U.S. State Dept. Decimal File, 316-176-426.
l* U.S. Legation in Warsaw, Report 1699, April 13, '9^8 (3 1 6-1 36- J 244),
*« U.S. Embassy in Berlin, Report 1407, August 17, 1926 (316-136-1232).
» Amtorg, op. cit., II, No. 7, p. a.
52 Western Technology and Soviet Economic Development, 191J-1930
James and Cooke, Inc., coal-mining consultants in the United States, was
making a preliminary inspection of Soviet coal mines:
. . . with a vieyr to their mechanization in accordance with the mostmodern American practice and methods. Mr. Stuart stated that several
shafts will be operated under the direction of the firm to serve as modelmines for the purpose of gradually extending the methods and systems."
Between 1927 and 1930, Stuart, James and Cooke, Inc., signed four technical-
assistance contracts with Soviet trusts. Two of these were with coal trusts
(Donugol and Moskvugol), the latter for technical assistance in the reorganiza-
tion of the Dubovaya Balka and October Revolution coal mines in the Moscowarea.
Charles E. Stuart was an active promoter of American assistance to the
Soviet Union. In a speech before the 1928 annual convention of mining en-
gineers, he stressed '. . . . the traditional friendship between the two
countries,' and suggested that 'America will surely play the foremost part in
the rehabilitation of Russia.' 17
A year later, after the four technical-assistance contracts had been imple-
mented, Stuart was even more generous in his praise of Soviet officials. In
1928 he was allowed to make a 10,000-mile trip throughout the U.S.S.R. and
recorded it on movie film later shown to the American Association of Mining
Engineers."
The Stuart Company drafted a complete five-year reorganization plan for
Donugol, modernizing equipment, layout, and working methods. Twelve
American engineers, sent to Kharkhov in 1927 to implement the program,
were supplied with Russian assistants, clerks and draftsmen. One year later
the staff of Russian engineering assistants was arrested by the OGPU. Despite
this demoralizing episode, the rationalization continued through the late 1920s
and 1930s. At first German and then American coal mining equipment was
utilized. Later Soviet-made equipment, manufactured under the Goodman,the Casablancas, and similar technical-assistance agreements, was used. Asimilar three-year reorganization plan was implemented by the Stuart com-
pany for the Moskvugol coal fields, in the Moscow sub-basin.19
" Amtorg, op. at., II, No. 7, p. 2.
" Neto York Times, February 33, 1928, Although there were no diplomatic relationsbetween the two countries, the Soviets were allowed to operate Amtorg in NewYork, supposedly to facilitate trading relations. Saul Dron was the president ofAmtorg.
'• Nets York World, March 3, 1919. Stuart was hardly a prophet concerning Sovietintention*. For example, he stated : "The prevailing opinion in the United Statesthat the U.S.S.R. while endeavoring to bring foreign capital into its enterprises hasthe intention of seizing those enterprises in the future, is entirely wrong.'
u Torgovo-Promysklermaya Gageta, No. 246, October 24, 19*9. Izvettia, No. 128,June 8, 1927. Stuart, James and Cooke, Inc., had similar contracts with Yurt, the
Coal and Anthracite Mining Industries $3
ROBERTS & SCHAEFER AND ALLEN & GARCIACONTRACTS
In mid-1929 a Type III technical-assistance agreement was signed between
Donugol and Roberts & Schaefer, mining consultants and engineers of
Chicago. The agreement was to sink five new coal shafts in the Donbas to be
completed within thirteen months, and to provide a production of 3.5 million
tons per year. The firm manufactured the equipment, installed it in the mines,
and brought the mines into operation. For this purpose engineers were sent
from Chicago to the Donbas, and a number of Donugol engineers were sent
to the United States for training."
Another United States firm of mining consultants, Allen & Garcia, was
given a three-year contract with Donugol in late 1927 to plan and build new
coal pits in the Donetz Basin, including both surface buildings and shafts.51
Two years later, in 1929, the firm received a second contract with Donugol
to plan and build three new coal pits within three years. The firm provided
thirty-five United States mining engineers and accepted ten Soviet engineers
per year for training in the United States.*2
In addition to contracts between American consulting firms and Donugol,
there were a number of individual contracts between specialist American
engineers and Giproshaft, the Institute for Designing Coal Mines, and
Kuzbastrust.
In 1929, under the reorganization plan of the Donetz coa! trust, three new
large capacity shafts were sunk, with an aggregate output of 1.65 million tons
of coal. The one in the Gorlov district had a capacity of 650,000 tons, the
one in the Dolzhansk area an annual capacity of 600,000 tons, and the one
in the Krindachev area a capacity of 400,000 tons per annum.
For the year 1929-30, some fourteen new shafts were planned, the largestwith
an output of 1.6 million tons per year. Brukh, chief engineer of Stein A-G
coal mine in Germany, designed the i.6-mi!lion-ton shaft in the Scheglov
district, and Thyssen A-G designed a similar shaft in the Gorlov district,
under the supervision of engineer Drost. Another million-ton shaft was
designed by Stuart, James, and Cooke, Inc.23
southern ore Trust; Kiseltrust, a Urals mining trust, and the Kuzbastrust, in the
Kuzbas coal fields. The company apparently viewed these undertakings as pure
concessions (316-136-372).
When Stuart, James and Cooke, Inc., issued their report on the reorganization of
the coal mines in 1931, V. I. Mczhlauk ordered 10,000 copies to be printed nnd
distributed to ail executives down to foreman level in the coal and related industries,
[E. M. Friedman, Russia in Transition (London: Allen & Umvin, 1933)]M Ekonomicheskaya Zkizn, No. 143, June 26, 1929.11 U.S. State Dept. Decimal File, 316-136-1342.tt Pravda (Leningrad), No. 246, October 25, 19*9-" Bank for Russian Trade Review, II, No. 7 (July 1929), p. 10.
54 Western Technology and Soviet Economic Development, igiy-igjo
Lomov, a member of the Central Executive Committee, pointed out in 1929
that reconstruction of the Donetz Coal Basin was impossible without outside
aid, as only 350 trained Russian engineers existed for 275 coal and anthracite
shafts. The gap would have to be made up with foreign engineers, whom'.
. . we are trying to employ on a large scale.' 2* He added that shafts were
being designed by two German firms (Thy&sen and Stein) and a number of
American firms, and that an agreement was about to be concluded with an
American firm to develop anthracite shafts. *In this way we shall be able to
solve the problem facing the Donetz Basin.' **
RESULTS OF THE MECHANIZATIONOF COAL MINES
Russian coal mines before 1923 were highly labor-intensive; there was little,
if any, mechankation even of an elementary nature. In 1923 the Donetz Coal
Trust imported a few Sullivan coal cutters,** followed by seventeen in 1925
and another forty-five in 1926.
In August 1923, the purchase and installation of mining machinery from
the United States was placed on a more formal and, from the Soviet viewpoint,
more satisfactory basis. J. A. Meyerovitch, who represented in the U.S.S.R.
a group of Milwaukee and Chicago equipment manufacturers including
Sullivan and Allis-Chalmers, informed the United States Riga Legation that
a concession had been concluded between the group and the U.S.S.R. Under
this agreement the group was to arrange the export of Russian mineral
products and to supply American mining equipment on a matching basis.
However, Meyerovitch had the distinct impres^inn that the Soviets were moie
interested in political recognition than in trade."
Coal-mining equipment purchases were stepped up in 1925-6 and included
a significant number of German and America. l ;ieavy (178) and light (125)
coal cutters, conveyors (30), hoists (32), and electric and gasoline tractors
and chargers. Both the Sullivan Company and Krupp, the leading sellers,
sent engineers to install and introduce the equipment to Soviet miners.
Westinghouse installed electric tractors, and Jeffry front-end loaders, while
Soviet purchasing commissions visited the United States.28
" 'Debates on the Five Year Plan,1
Pravda (Moscow), April 28, 1929.•• Ibid.
** The contract was arranged by Meyerovitch, the Sullivui Co. representative in the
U.S.S.R. It involved $210,000 worth of coal mining machinery, on terms oftwo-thirds cash and one-third in four months, one of the earliest trade credits
granted by a Western company (316-130-1274),
" U.S. State Dept. Decimal File, 316-131-719. See also chap. 16 on RAITCO." Amtorg, op, eft., II, No. 16 and No. 19.
Coal and Anthracite Mining Industries 55
Table 3-3 INTRODUCTION OF THE MANUFACTUREOF COAL MINING MACHINERY
ItemNo*
56 Western Technology and Soviet Economic Development, 1917-1930
of electric motors was undertaken after 1930 (Group B) to a General Electric
design described by them as unique and used only in Soviet-made coal
cutters.*
The effect of imported and Soviet-made coal-cutting machinery was signi-
ficant. In the Donetz Basin the number of coal-cutting machines in operation
increased from none in 192 1 to 348 in 1927-8, the last year in which the U. S.S.R,
was completely dependent on imported equipment. In the peat mining
industry reliance was completely on imported drag lines, and it was not until
the 1930s that the hydra-peat method, using specially designed General
Electric motors, was introduced.*1
Increase in production per machine from 6,264 metric tons in 1922-3 to
14,300 metric tons per machine in 1927-8 (table 3-4) testifies to the success
of the Stuart, James and Cooke rationalization scheme and to the efficient
training of workers and installation of equipment by Western manufacturers.
In terms of output-per-worker, the increase was also significant: from 5.8
tons per worker per month to 12.4 tons in 1927-8, compared to the United
States average of 48 tons per worker per month.
Table 3-f DONETZ BASIN: CHANGES IN NUMBER OF SHAFTS,TOTAL OUTPUT AND MINE AVERAGES, 1913 TO 1926-7
DateNumber ofSkaftt
Production
(in millions ofmetric torn)
Averageper Mine
(in metric tons)
1913
Coal and Anthracite Mining Industries 57
238 in the same period that output was increasing was due to concentration
of the newly imported equipment into comparatively few mines, increasing
the output per mine while ruthlessly closing down the non-mechanized mines.
In 1935, beginning with German reorganization assistance and continuing
with large imports of mechanical coal cutters and conveyors, output increased
;
and the number of operating shafts increased as the mechanization program
spread. The dramatic rise in mine output accompanies the first introduction
of mechanical equipment, and the output stabilizes at 51,000 tons per shaft
at this date, indicating a methodical program of mechanization and training
in an increasing number of mines.
Whereas in 1922-3 only 200,000 tons of coal were mined by machine in
the Donbas by 1928-9 about 30 percent (or 7.6 million tons) were machine-
mined; and the U.S.S.R. had not at that time begun to manufacture coal
cutters.
The Warren Coal Corporation, coal distributors of Boston, concluded an
agreement with Amtorg in May 1929 covering the distribution of 160,000
tons of Soviet anthracite per year in the United States. Warren became sole
distributor for Russian anthracite in New York and the New England States.32
In critical stagnation at the beginning of the decade, the coal mines,
technically backward and with inefficient, unskilled labor, were reorganized
according to United States coal-mining procedures utilizing first German and
later American coal-mining equipment. At the very end of the decade, arrange-
ments were made with Spanish and American companies for technical assist-
ance in the manufacture of coal-mining equipment, all of which had been
previously imported. Pure concessions were not of major importance in the
aggregate, except that Union Miniere operated a number of large Donbas
mines at a time when the majority of these mines were either closed or being
re-equipped by German (later American) engineers. However, more remote
mines, in the Kuzbas and the Far East were extensively operated by foreign
concessionaires.
Agreement is in U.S. State Dcpt. Decimal File, 316-136-1285.
CHAPTER FOUR
Early Development of the Soviet Metallurgical
Industry
The metallurgical industry, primus inter pares of the 'commanding heights'
of the economy, was kept well within the control of the planning organs and
the Party. The decade of the 1920s, which has been called by Clark the
'restoration period' 1 to distinguish it from the massive new metallurgical
construction of the 1930s, suggests that only limited technical and economic
advances could be made without Western technical assistance.
THE SOUTHERN ORE TRUST (YURT)
Yurt controlled iron ore in Krivoi Rog and manganese in theNikopol deposits.
After 1924 there was an agreement with Rawack and Grunfeld, of Germany,
for the operation of these manganese and iron ore mines. Rawack and Grunfeld
also held a monopoly for the sale of all South Russian iron ore and manganese
in foreign markets. In 1924-5 the company sold 21 million poods of iron and
manganese ores to Germany, Italy, Belgium, and the United Kingdom.2 ThePort of Nikolaev was equipped with ore loaders by the company to handle
the export of these ores.
Only six mines were operated at the beginning ofthe year. The major restor-
ation of the Krivoi Rog iron ore and manganese mines took place after 1925
under predominantly German technical assistance. In December 1925, fourteen
iron ore and three manganese mines were reopened ; these were tsarist mines
closed since the Revolution. The mining equipment was purchased in the
United Kingdom and Germany by Yurt, on nine months' credit. Company
engineers from the United Kingdom and Germany assembled the equipment
and put it into operation.
1 M. Gardner Clark, The Economics ofSoviet Steel (Cambridge : Harvard, 1956), p. 65
.
U.S. Consulate in Hamburg, Report 360, October n, 19*5 (316-108-1544).
Early Development of the Soviet Metallurgical Industry 59
At this point the mines at Krivoi Rog and Nikopol were inspected by a
German industrial delegation headed by Steinitz, of Rawack and Grunfeld,
which expressed the opinion that the newly equipped mines could produce
500 million poods of iron ore and 150 million poods of manganese within
five years and that the members of the delegation were prepared to provide
assistance to reach that objective. Its opinion was that new equipment to
fulfill the five-year program need only consist of electrical mining equipment;
Yurt was instructed by Vesenkha to consider the German suggestions, which
were later implemented. It was also agreed that credit would be advanced by
Germany to Yurt on the basis of the proceeds from the anticipated export of
manganese ore from Nikopol. 3
In October 1927 Yurt concluded a technical-assistance contract with Stuart,
James and Cooke, Inc., for the further preparation of projects and consulting
services.1
RECONSTRUCTION IN THE METALLURGICAL SECTOR
The position of the Russian iron and steel industry in 1920 was almost un-
believably bad. In 1913 there had been 160 blast furnaces operating in
Russia; but in 1920 only 12 were operating intermittently. In 1913 there had
been 168 Martin steel furnaces; but in 1920 only 8 were operating inter-
mittently. Production of iron ore was 6 million poods, compared to 55 1 million
poods in 1913. Production of cast iron was 6 million poods, compared to 231
million in 1916 and 6.6 million poods in 1718 under Peter the Great.
Production of rolled iron was 6.4 million poods, compared to 222 million
in 1916, and so on. Of sixty-six cast-iron foundries available, only two were
in production. However, employment had not fallen in the same proportion
:
whereas 257,000 were employed in metal works in 1913, there were 159,000
so employed in 1920 despite the catastrophic decline in output.*
The metallurgical sector, however, received comparatively few concessions
until the Type III technical-assistance agreements of 1927-9, which were a
prelude to the Five-Year Plan construction. Although, production had
partially recovered by the late 1920s, technologically the industry had remained
at the level of the tsarist era. Independently attempted technical advances
backfired and forced the Soviets to seek out Western assistance—another
proof that Soviet development and technical progress in the twenties were
essentially dependent on Western technical aid. Soviet-originated projects
' U.S. Consulate in Hamburg, Report 417, December 12, 1925 (316-108-1582).* Torgovo-Promyshlennaya Gaseta, No. 229, October 7, 1927.* These figures taken from a confidential report in U.S. State Dept. Decimal File
(316-107—359). Also see report from General Wrangel's staff, December 1521(316-107-560).
6o Western Technology and Soviet Economic Development, igij-iQ30
3
Early Development of the Soviet Metallurgical Industry 6
1
were fumbling and technically inept, and made little contribution to recon-
struction or development. The only successful Soviet work of the period was
the restoration of seven small blast furnaces—not a particularly difficult
task—and these, as Clark points out,
... are almost never mentioned in Soviet technical or metallurgical
literature. Perhaps the Soviets are ashamed of these first attempts, which
certainly look like pygmies beside the giants built during the First Five
Year Plan.8
The Donbas sector is by far the most important of the iron- and steel-
producing regions. As shown in figure 4-1, Ugostal {Southern Steel Trust),
formed in 1923, divided the inherited plants into four groups: the Donetz
group proper, at the east end of the basin; the Ekaterinoslav group, at the
western end of the basin and north of the iron-ore fields of the Krivoi Rog;
the southern group of plants on the Sea of Azov; and the Kramatorsk and
Hartman locomotive plants.
The Donetz group metallurgical industry was in a sorry state in 1921. All
plants were closed except for Makeevka and Petrovsk. The latter had no
blast furnaces in operation, and rolling was limited to available steel slab
stocks. Whereas more than 233 million poods had been produced in all Russia
in 1916, only 7 million poods were produced in 1920' (i.e., about 3 percent),
and much of this was too bad in quality for use. In the Donetz area the position
was even worse, with production less than .5 percent of the prewar level.
Contraction of the metallurgical industry continued into mid-i9Z2. Most
of the Donbas steel plants remained closed, reportedly because of a lack of
purchase orders and working capital. Only South Briansk and Chaudoir
operated on a continuous basis; Petrovsk, the largest, continued with one
furnace working continually and the others either intermittently or not at all.
Makeevka was partially closed in 1922.
In early 1923, the mines supplying Petrovsk became idle, as did the open-
hearth steel-making plant. The plant was in fair condition technically but now
lacked skilled labor. Makeevka was completely closed, although the workers
were retained.
' Clark, op. cit., p. 82. Soviet restoration was limited to the simplest of repair work;
even furnace lining (a skilled but simple task) was difficult for them. For example,
the Perin and Marshall engineers stated that in 1926 the unfinished No. 5 blast
furnace at Petrovsk required only a 'comparatively small expenditure' to complete.
The furnace had been under construction prior to 1914 and 'nearly all of the metal
work (had) been erected for the furnace proper, stoves and skip bridge,' but much
of the piping' was still lying on the ground where it had rested since 19 14. Theinference is that completion was beyond the technical capabilities of Ugostal.
[Perin and Marshall, Report on Improvement of the Ugostal Steel Plants of South
Russia (New York: 1926), p. 42.] Petrovsk No. 5 was not working as late as October
1928. (Kruglyakova, op. cit., p. 70.)
' Ekonomieheskaya Zhizn, No. jo6, May 18, 1921. Numerous articles in this and
other journals in the period 1920-2 indicate a pitiable condition.
62 Western Technology and Soviet Economic Development, igij-x^o
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Early Development of the Soviet Metallurgical Industry 63
One widely held view was that Ugosta! should be disbanded and all the
South Russian steel works closed. The area was being worked at a loss. There
were few orders; most were being placed abroad. However, the trust employed
27,000 people: sufficient argument to keep the mills in intermittent operation
!
A compromise was reached by formally closing Makeevka and discharging
one half of the workers while transferring the other half to the Ugostal coal
mines.8
In the next three or four years, several blast furnaces were rebuilt, with
Western assistance and by 1927-8 pig-iron output was increased in four of
the ten plants which constituted the prewar Donetz group. The Donetz group
now produced more than 1 million tons of pig iron (compared to 1.6 million-
in 19 1 3), including output from blast furnaces at Briansk-Alexander, the
Donetz- Iur'ev works, and the Frunze (old Society des Tuileries) works. In
1928 all output from the Donetz section of Ugostal, the largest single group of
metallurgical works, was from pre-Revolutionary plants which had been put
back into operation.
The second group of works forming the Ugostal trust was in the Ekateri-
noslav area, at the western end of the Donbas and to the northeast of the
Krivoi Rog iron-ore deposits. This group comprised six prerevolutionary
plants, only three of which (Dnieprovsk, Briansk, and Gdantke) had been
pig-iron producers with blast furnaces. Of these three only Briansk was pro-
ducing pig-iron in 1923-4; neither the Dnieprovsk or the Gdantke were
operating as pig-iron producers. Consequently in 1923-4 only one of the
six works situated near the Krivoi Rog iron ore deposits was producing any
pig iron.
Two works, the Dnieprovsk and the Lenin (formerly the Shoduar 'A') were
producing small quantities of open-hearth steel and rolled steel products.
In sum, this group was only producing about 140,000 tons of rolled steel
products in 1923-4, compared to almost 826,000 tons in 1913.
The third group of Ugostal metallurgical works was the Azov Sea group
of four prerevolutionary plants which produced 400,000 tons of pig iron in
1913. No blast furnaces in this group were operating in 1923-4, and only two
produced any rolled steel: Zhdanov and Taganrog. As Taganrog produced no
slab steel, it was probably importing slabs from the Zhdanov works (formerly
the Marioupol), (table 4-3).
The old Providence works was first merged with the Zhdanov, a few miles
to the South, and then closed down.
The Kertch works was first built by French and Belgian capital in 1900,
but the owners had closed it down as unprofitable after a few years. 9 The
• Pravda, No. 48, March 3, 1933.
• Clark, op. tit., p. 157,
64 Western Technology and Soviet Economic Development, 1917-1930
1
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til
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Early Development of the Soviet Metallurgical Industry 65
66 Western Technology and Soviet Economic Develofbient, 1917-1930
equipment had survived until 1925 in good condition, ana the Soviets reopened
the works according to plans drawn up by German and American engineers.
The first blast furnace was ready for blowing-in by 1929. The cost of recon-
struction, however, greatly exceeded even the most pessimistic estimates, and
a search was put under way for the 'criminals' who had miscalculated. The
major problem was that the furnaces would not smelt local iron ores.
The failure of the Kertch works is typical of the actual conditions of
the new industrial enterprises which have been organized by inexperi-
enced and inefficient persons for the sake of political propaganda and
without any regard of the conditions under which the new plant will
have to work.10
By late 1929 only two of the projected three blast furnaces had been built,
and capital costs already had exceeded 66 million rubles—far in excess of
the 18 million originally estimated for the whole project. The operating costs
were also significantly greater as local Lipetsk 40-percent-iron ore required
additional fuel, which had to be transported from the Donbas. Use of this ore
required an additional nine rubles a ton for transportation.11
THE STRUCTURE OF UGOSTAL IN 1929
At the end of the decade, Ugostal consisted of eight plants constructed
before the Revolution and one reconstructed plant, the Kertsch, whose prob-
lems have already been discussed. These plants had produced 3.2 million
metric tons of pig iron in 1913, whereas in 1929 they produced less than 2.5
million, with labor productivity about 50 percent below the prewar level. Real
wages had declined heavily because of the many compulsory contributions
required of the plant workmen.1*
Several smaller works were included in the trust, including the former
Handtke plant, producing iron pipes, and the former Sirius and Taganorog
plants, producing railroad equipment.
Although a few American and Polish engineers worked on the Ugostal
plants, the bulk of the rehabilitation was carried out by German engineers
working under the post-Rapallo economic-cooperation contracts between
Germany and the Soviet Union.
10 U.S. State Dept. Decimal File, 316-139-232/8. The American and Germanengineer* said their calculations were correct, but they had failed to take political
considerations into account (316-133-858),
11 U.S. State Dept. Decimal File, 316-139-332/8.
11 Based on report from Polish Consulate General in Kharkov, June 5, 1929, from
information supplied by a Polish engineer working for Ugostal and believed to be'absolutely reliable* (3«6->39-2S0-
Early Development of the Soviet Metallurgical Industry 67
CONCESSION OFFERS IN METALLURGICAL CONSTRUCTION
Large new metallurgical projects and the rehabilitation of prerevolutionary
plants were offered as concessions under the broadened post-1927 concessions
policy.
The possibility of using the iron-ore reserves of Magnitogorsk with the
extensive coking coal deposits of Kuznetsk had been discussed in Russia
since the nineteenth century. The Magnitogorsk concession proposal was for
a 656,000-ton-capacity plant (rolled products), to produce pig iron, together
with steel-making and rolling facilities. 13 The rolling capacity of the suggested
plant was planned as follows:
Heavy rails 245,000 tons
Large stanchions (structurals) . . . 33,000 tons
Medium commercial iron and pit rails . 65,500 tons
Small commercial iron products . . 230,000 tons
Casting iron 27,500 tons
601,000 tons
A preliminary outline of the technical requirements was published. Theplant was scheduled to include four blast furnaces, open-hearth and Bessemer,
furnaces, and rail and continuous blooming mills of American design. Three
basic requirements repeatedly emphasized were that the plant had to operate
on coke, that the coking had to be undertaken at Magnitogorsk from Kuznetsk
coal, and that coke by-products were to be utilized. This emphasis is interest-
ing as it relates to the basic economic weakness of the Magnitogorsk-Kuznetsk
project and the technical weakness of the Soviets in coke by-products produc-
tion.14
Given the long haul for coking-coal, transport costs were the major factor
in determining profitability. Early discussion, beginning in the 1890s and
continuing through the 1920s, had revolved around this point. As late as
1927, 1. G. Feigin had stated that 'transportation of raw material and fuel for
2,000 kilometers is completely irrational.' 15 But the official party line was
that transportation costs could not be a determinant of location in a Socialist
economy, this being bourgeois Weberian theory.
The concession was offered a supply of coking coal from Kuznetsk, then
being planned by Freyn and Company, Inc., at a rate of 0.38 kopecks per
" P. I. Egorev, The Magnitogorsk? (Magnet Mountain) Metallurgical Works (Moscow
:
Glavnyi Kontsessionnyi Komitet, 1929). This was the same technical arrangementsuggested by Perm and Marshall two years earlier and rejected as 'technicallyinadequate.'
" See chap. 12.
16 Clark, op. cit., p. 215.
68 Western Technology and Soviet Economic Development, 1917-1930
ton-kilometer. Consequently, any concessionaire with the temerity to under-
take construction of Magnitogorsk and install coking facilities dependent on
Kuznetsk coal would have been completely at the mercy of the Soviet govern-
ment By merely raising transport rates to equal costs, the Soviets could have
forced the concessionaire to abandon the project. This was in addition to the
immense difficulties which could have been imposed on the concessionaire as a
result of the single-track, inadequate, and overcrowded railway already
straining under the weight of increased coal tonnages. It will be recalled that
the major problem in getting American and British relief to this part of Russia
had been a heavily overburdened and inadequate rail system which required
several weeks for journeys of a few hundred miles, even though large segments
of the population were starving."
The estimated cost of building Magnitogorsk was 171 million rubles. Theplant was to employ 6,216 people and return a profit of 10 percent. Theconcessionaire was given the option either to operate the plant for a numberof years as a pure concession and then turn it tv;r to the Soviet government,
or to operate it as a credit concession in which erection and operation would
be undertaken by the Soviets and the foreign Cvr--pany would grant a ten-to-
twelve-year credit.
Clark states that the basic rate of 0.38 kopecks, also used in the argument
over the construction of the shuttle under the ?ive-Year Plan, was about
one-third the rate charged for coal hauled the same distance in the general
rate schedule. The Magnitogorsk concession lay outside the control of
potential concessionaires; one could have fulfilled an agreement, stayed
within the cost estimates given, and yet within a f :w months or years been
forced to abandon the concession operation.
Whether this was the intent or not is debatable. The history of other
concessions gives support to the probability that this was indeed an aim of
concession policy. Chernomordik, referring to the special discount or subsidy
given to the Magnitogorsk-Kuznetsk shuttle says,
The Soviet freight-rate system, based on the principle of costs, includes
the use of freight rates as a lever of economic policy."
In brief, the proposed Magnitogorsk concession could have operated only
with a subsidy from the Soviet government to the foreign operator. It is
unlikely this subsidy would have been long continued.
The restoration of other large metallurgical complexes was offered to
foreign capital.
H. H. Fisher, The Famine in Soviet Russia (New York: Macmiltan, 19*7), p. 173.
D. Chernomordik, 'Toward a Theory of Railroad Freight Rates,' Voproty Ekono*miki, No. 9, 1948, p. 3*.
Early Development of the Soviet Metallurgical Industry 69
The Nadejdinsky Metallurgical Works in the Urals, founded in 1894,
battered in the Revolution and Civil War, subsequently operated by the
American Industrial concession, and still in a bad state of repair, was one
such project. The works comprised the iron ore mines about 90 kilometers
away, and the Bogoslovsky brown-coal mine about 50 kilometers away,
together with extensive forest properties for the manufacture of charcoal, and
both narrow- and wide-gauge railroads.
Production in 1929 was less than half of 19 13 output, and the ore and coal
mines had received little new equipment since 1899-1907, when the plant
had first been placed in operation.
The equipment was out of date. The air and gas blowers dated from between
1905 and 1913. The six rail- and sheet- rolling mills dated from the mid- 1890s
and were classified in 1939 as only 50- percent fit (three mills), 70-percent fit
(two mills) and 90-percent fit (one mill). Even if restored to normal operation,
they would have been be well below current engineering standards. The blast-
furnace plant operated on a fuel comprising a mixture of brown coal, charcoal,
and wood; and occasionally one furnace operated on imported Siberian coke."8
Employment in 1929 was over 20,000 workers, producing about 163,000
tons of pig iron per year and converting this into 155,000 tons of steel.
The product totals produced by the plant in 1929 were:
59,600 tons rails
4,600 tons roofing iron
2,500 tons commercial iron
4,000 tons pit rails (light rails).
The concession offered required the prospective concessionaire to drop rail
and tire production and rebuild the plant for roofing-iron production only.
In effect, this involved the construction of a completely new plant (at a cost of
between 47 and 53 million rubles) which, it was claimed, would produce 11.
7
to 13.0 percent return on. investment.19
The Taganrog Metallurgical Works dated from 1895, and was in a very
poor state of repair.20 The furnaces were oil-fired and produced just over
57,000 tons of steel ingots in 1927-8. Of six rolling mills, only the roofing mill
was described as satisfactory. The electrical equipment dated from the period
1895-1 907.
• I. N. Kostrow, The Nadejdinsky and Taganrog Metallurgical Works (Moscow:Glavnyi kontsessiony komitct, 1929).
» Ibid., p. at.n Ibid., p. 30. The four Martin furnaces are described as 'exceedingly worn out and
of obsolete type.' The three Thomas converters are described as 'partly demolished. , . very much out of date.
1
70 Western Technology and Soviet Economic Development, 1917-1930
A concession was offered to produce 160,000 tons of roofing iron per year,
with the stipulation that coke ovens were to be built together with a plant for
the manufacture of chemical by-products. Profit was estimated at 10 percent.
There are interesting parallels between these metallurgical concession offers.
Each stipulated (Magnitogorsk and Taganrog) or involved (Nadejdinsky) the
construction of coke ovens and the utilization of coke as a fuel. Without
control of coking-coal deposits the concessionaire could not have controlled
the operation of the metallurgical plant. Using the weapon of transport costs,
the Soviets could have squeezed out the concessionaires without violating
the letter of the agreement.
The profit estimates, from 10 to 13 percent, indicate a rather naive concept
of the degree of inducement required to enter a new line of endeavor. Even
without political risk, as in the United States or Great Britain, an estimated
annual return of 20 percent would have been more suitable.
PURE (TYPE I) CONCESSIONS IN THEMETALLURGICAL INDUSTRY
Pure concessions were not a major factor in the development of the iron
and steel industry, the Soviets were obviously unwilling to allow Western
elements to operate freely in the most strategic of the 'commanding heights.'
The Russian-American Steel Works was established in the Soviet Union
by emigrant American workers in 1921. They were able to double output in
the first year and then ran into problems; insufficient orders were forthcoming
from the trust, and the works was diverted into supplying small orders for
private firms and repairing automobiles and tools. There were insufficient
raw materials—about 30 percent of the steel received was unfit for use—andshortages of oil and coal.21
An early Type I concession, perhaps better described as a commune, was
granted to 3,000 emigrant American workers about 1922. The Nadejdinsky
mines, in Perm okrug, and later part of the Uralmed trust was reportedly
being operated along with associated coal mines and forests. They were granted
20,000 dessiatins ofland for agricultural use and a loan (at 7 percent) of 350,000
gold rubles for working capital. Each worker was required to bring $100 in
cash and Jioo worth of tools. The government purchased 50 percent of
production and the balance accrued to the concession.52
At least two metallurgical works were leased to Russian concessionaires,
The Randrun foundry, at Omsk, was leased back to its former owner in
,l Pravda, No. 79, April 12, 1923.
" Haywood contract with the Soviet of Labor and Defense (316-111-1270). Seechap. 3 for details of the Haywood (American Industrial Corp.) contract.
Early Development of the Soviet Metallurgical Industry 71
October 1921 on condition that he undertake the necessary repairs to get it
back into production. As soon as the foundry was back in operation, the
former owner was again ejected and the Soviets took over operations."
Another large works, the Goloborodov—part of the Eketerinslav group in
southeast Russia—was leased for five years with a rent based on output. 24
In 1924 the Viksun Metal Works, in the Urals, nominally part of the Gomzatrust, was leased for forty years to the German firm, Bergman, on a pure
concession basis. Bergman was required to restore the equipment and put the
plant in operating condition before May 1925. Forests, mineral rights, and
mines over a 250-squarc-verst area were handed over to Bergman for exploita-
tion. The company had the right to hire and fire, with the restriction that
foreign personnel were not to comprise more than 25 percent of workmen,
45 percent of foremen, and 75 percent of technical personnel. The only
assistance from the Soviets was to provide labor. The concessionaire was
required to make payments, beginning in 1928, to comprise 30 percent of
the final manufactures (heavy machinery, etc.) or semi-manufactured materials
and minerals output in the lease years three through ten. A minimum conver-
sion of five million poods of ore into metal was required, with a corresponding
manufactured output. The concessionaire was required to manufacture
heavy machinery and various metal goods including guns, shells, and small
arms."
The Lena concession operated the blast furnaces and steel works at Sissert
and Revda, in the Urals. The company first renovated seven iron ore mines,
three limestone quarries, and two quartz quarries in Polevskoi rayon, installed
new iron works plant at the Scversky blast furnace, and renovated the Revda
iron and steel works. By 1927 the annual combined output of these works was
100,000 tons of roofing iron, almost 30,000 tons of wire, 1,400 tons of nails,
and 3,000 tons of cast iron shapes. This was achieved in a plant producing
nothing when taken over in 1925 by Lena, who spent more than $2.5 million
on imported equipment for these works.
The available evidence indicates that foreign labor was not generally
utilized—apart from that in these pure concessions—before about 1927. ThePolish Foreign Ministry concluded as late as mid-1929 that:
" U.S. State Dept. Decimal File, 316-107-203.** U.S. State Dept. Decimal File, 316-107-5*." The agreement contained a clause that military production could be exported, so it
may be assumed that this agreement was part of the wider German-Russian militaryco-operation of the 1920s. This was not one of the GEFU shell-making plants(316-139-191).
There was also a report from the United States Riga Consulate in late 1923 to theeffect that a number of the Krivoi Rog coal and iron ore mines had been turnedover to the munitions firm Crouardi for the production of armaments. (U.S. StateDept. Decimal File, 569-3-99.)
•jz Western Technology and Soviet Economic Development, igij~ig3o
Very few foreigners are among the technical personnel of the Jucostal ;
but such foreigners as are employed are engineers or skilled workmenfrom Germany or Czechoslovakia, and occasionally Poles.29
The Perin and Marshall report27 on the reconstruction of the South Russia
iron and steel industry was centered around reconstruction and enlargement
of one works, the Petrovsk, while including the Stalino, Makeevka, and
DoneU-Iur'ev works in a subsidiary role; the others were scheduled to be
closed down.
In essence, the Perin and Marshall report proposed three new 750-ton
skiploaded blast furnaces and completion of an existing 600-ton furnace to
replace smaller hand-fed units. Steel was to be made in three departments
:
an open-hearth plant with three modern open hearths replacing four obsolete
furnaces, a new Bessemer plant, and a duplex plm.t to make steel from an all
hot-metal charge (to overcome the scrap shortage).
The major technological change suggested by Perin and Marshall was
installation of a powerful blooming mill to break li.ge ingots into slabs before
rolling them into finished products—a very succesr-ful process in the United
States but not then introduced in Europe or Rursla.
The (consequent) large supply of relatively cheap billets and bloomswill permit the small and medium shape, merchant and sheet mills of the
Donbass steel works to be remodeled so as to reduce the amount of workwhich these mills must do with a reduction in hbor and an increase in
tonnage.*8
The report pointed out that these proposals would not interfere with existing
Ugostal plans butwould generate a substantial increase -n capacity at reasonable
cost. The metallurgy of the duplex process lent itself to the high-sulfur coking
coal available. Semi-skilled labor could be used, as was typical in the United
States.
A contract was concluded in October 1927 between Percival Farquhar
(an American financier) and the Soviet government to develop the Donetz
Basin. The contract was based on the findings of the Perin and Marshall
report.
** Report of the Polish Consul General at Kharkov, June 5, 1029 (316-130-255/8).This was reasonably accurate for the period before 1929; T. H. McCormick had atwo-year contract as technical director of the Poltava steel mills for 1928—1930,and the Frank Chase Company, Inc., had a contract in 1928 to reorganize thefoundry department ofthe Podolsk plant, but no others, except the Freyn-Gipromeztechnical agreements, have been traced at this time.
" Perin and Marshall, Report on Improvement of the Ugostal Steel Plants of SouthRussia (New York: 1926). This was one of three reports prepared for Percival
Farquhar in his negotiations for a large concession based on the Don railroad andmetallurgical industries. The Farquhar documents covering these negotiations are
in the Hoover Institute Library, Stanford University.
" Ibid., pp. 59-60.
Early Development of the Soviet Metallurgical Industry 73
In order to implement this agreement, Farquhar proposed the formation
of a Delaware company, the United American German Corporation, which
would administer the contract. The capital was to be 82 million; one half
subscribed by Percival Farquhar, Ingersoll-Rand Company, and Dillon Reed,
and the other half by Vereinigte Stahlwerke and Otto Wolff in Germany.
The contract consisted of two parts : first, a definite agreement to construct
a large, modern one-million-ton-capacity iron and steel mill with all ancillary
equipment 'according to American standards, specifications and patents in
the coal and iron ore district of South Russia';*' and second, optional for the
company, was the reconstruction of the railroad transportation system of the
Don 'on American standards,' together with the construction of iron ore
concentration plants at Krivoi Rog and elevators, docks and shipyards at
Stalingrad.
Under the first part of the contract, the United American German Corpora-
tion was to receive drafts from the Soviet State Bank to the amount of $40million, bearing 6 percent interest, amortizable over a period of six years.
The Corporation would then sell in the United States S20 million worth of
6-percent debentures 'guaranteed unconditionally (as to) principal and interest
by the German Government.' The balance of the capital would be provided
by manufacturers' and bankers' credits. This was not acceptable to the State
Department or to the Treasury Department, on the grounds that the benefits
would accrue to Germany rather to the United States, and that the transaction
would be, in effect, Russian financing and the employment of American credit
for the purpose of making an advance to the Soviets. It was held to differ only
in form, not in substance, to previous unacceptable proposals.
Subsequent to the failure of this move, an agreement was signed between
the Farquhar-Otto Wolff group and the Soviets involving a $40 million credit
for the reorganization of the Makeevka metallurgical trust, on a six-year-loan
basis. This was a straight credit arrangement involving neither concessions
nor sale of the property. 30 31
In 1928, Gipromez, staffed by the Freyn Company, rejected the Farquhar
proposal for Makeevka as containing serious defects. It was argued that costs
were underestimated. Technical defects were found in the rolling-mill
arrangement, the equipment selection was not justifiable on either technical
or economic grounds, and the project contained no provision for either internal
'* Based on memorandum submitted to Secretary of State Kellogg by P. Farquhar,dated October s. 19*7 (316-131-975/6). The contract is in U.S. State Dept.Decimal File, 316-131-977/92.
" Those readers wishing to explore the Soviet-Farquhar contract in more detailshould examine the four boxes of Farquhar's personal papers at the HooverInstitution, Stanford University.
" German Foreign Ministry Archives (quoting a Tass report of January 21, 1928),T120-3032-H109353.
74 Western Technology and Soviet Economic Development, 191J-1930
transport or power supply. The connection betweenlthe rejection of the
Farquhar project, the subsequent conclusion of a technical-assistance agree-
ment with Dr. Kuppe (a well-known German rolling-mill specialist), and the
earlier agreement between Gipromez and Freyn, under which planning
assistance was given to new iron and steel projects, is unknown. It would be
reasonable to assume that the events were not disconnected. There is no hard
evidence of active competition between the American and German concession-
aires and planners, but such competition was certainly not beyond the realm
of possibility.**
TECHNICAL-ASSISTANCE AGREEMENTS WITH GIPROMEZ
The agreement between Vesenkha (Supreme Council of the National
Economy) and the Freyn Company, Inc., of Chicago, signed in August 1928,
was the first milestone in the transfer of Western metallurgical technology.
This was an extension of an earlier agreement, signed in 1927, under which
Freyn gave technical assistance in reconstructing existing metallurgical plants
and construction of new plants in the U.S.S.R., and was especially concerned
with the design of the new Kuznetz iron and steel plant, estimated to cost $50million and planned as a key element in the forthcoming Five-Year Plan,
and the reconstruction of the old Telbiss iron and steel mill. The second 1928
agreement enabled Gipromez (the State Institute for Planning Iron and Steel
Works) to create a new metallurgical section staffed by 'the most prominent'
Freyn engineers, twelve ofwhom took up permanent residence in the U .S.S.R .M
At the same time, six Gipromez design engineers went to the United States
for three to four months, 'visiting American plants and consulting American
engineering authorities.' 3* In addition, access was now given to Freyn archives
* The real reason for turning down the proposal was that the Soviets were not tooassured Farquhar could raise the required capital, and in any event they objectedto the aale of 'German machinery at American prices.' He was paid 3600,000 for histechnical services. (316-131-1088/9, U.S. Embassy in Berlin, Report 4121,November 19, 1928.)
See also Charles A. Gauld, The Last Titan: Percivat Farquhar (Stanford: StanfordUniversity, Institute of Hispanic American and Luzo-Brazilian Studies, 1964).Gauld makes the point that the Soviets are impressed by those capitalists whoBuffered their losses in silence. Farquhar lost about $100,000 on the Donetz projectbut said nothing publically: 'Farquhar's silence impressed the Kremlin . . . (he)was surprised When later the Soviet planners, on resuming the Donetz project,invited him to return to help co-ordinate it. But he had had enough of semi-Asiaticdealings with Soviet 'state capitalism.' He declared 'I learned that capitalists cannotdo business with amoral, cynical Communists' (p. Z05). Farquhar's impressionwas not typical—see W. Averell Harriman's adventures, pp. 89-91 below.
" 'American Technique Assists Soviet Metallurgy,' Ekonamichukaya Zhisn,tia, 182,August 8, 1928, and Clark, op. tit., p. 65, Gipromez was founded April 10, 1926and was comprised of a council of 237 professors and engineers. The utilization ofFreyn designs will be traced in Vol, II,
" Amtorg, op, «'(., II, No. 14 (July 15, 1927).
Early Development of the Soviet Metallurgical Industry 75
and standard metallurgical drawings; and all Soviet project planning was
transferred from the United States, where it had been conducted to that time,
to the U.S.S.R. In other words, the design and technical experience of the
leading United States steel works designer was now at the disposal of Gipro-
mez. The first basic 'Soviet' blast furnace design resulting from this agree-
ment was, according to Clark, used for twenty-two blast furnaces, each with
a capacity of 930-1,000 cubic meters and an output of 1,000 tons or more a
day—substantially larger than that of any previous Russian furnace.
Under the second agreement, Freyn contracted to plan and supervise the
reconstruction of forty metallurgical plants and the building of eighteen
completely new iron and steel plants, at an estimated total expenditure of over
$1 billion.33 These plants were to form the basic structure for the Five-Year
Plan, In addition to the Freyn assistance, Dr. Kuppe, a prominent Germansteel-rolling specialist, acted as a consultant to Gipromez.36
Amtorg was able to conclude in 1928 that although the U.S.S.R. lagged
behind in iron and steel, the 'enormous technical advances made during
recent years in , . . the United States and other countries arc now being
incorporated in the new plants under construction in the U.S.S.R.' 37
Thus Russia was able to utilize wide-Strip mills, a fundamental innovation
in iron and steel technology, within six or seven years of their introduction
in the United States and at least two years before utilization in Europe. 38
Amtorg, op, cit., IV, No. 6 (March is, 1929).
U.S. State Dept. Decimal File, 316-131-1075.
Amtorg, op. cit.. Ill, No. a (January 15, 1928) p. 24.
The first wide-strip mill in the United States was installed in 1926; the first in
Europe was the Richard Thomas, Ltd., mill at Ebbw Vale, South Wales, completedin 1937. German continuous mills of the 1920s were not able to produce steel strip
wider than 30 inches.
CHAPTER FIVE
Non-ferrous Metal Mining and Smelting;
The Manganese Concessions
LEAD-ZINC MINING AND SMELTING
Zinc, lead, silver, and copper production, both in the form of mined ore and
smelted metals, are examined in this chapter separately, although in practice
they are mined jointly and smelters produce separate metals, as well as
by-products.
Some lead-zinc ores were mined and exported in tsarist times, but no
smelting on a sizeable scale developed until the igio opening, by the British
Urquhardt (Ridder) concession, of lead-zinc mines in East Kazakhstan, near
the Chinese border. The company installed 120 kilometers of narrow-gauge
railroad and the Altai smelting plant. The immediate post-revolutionary
history of this complex was unhappy:
When the Bolsheviks took over the mines, they spent enormous sumsfor new equipment, much of which deteriorated or was completely ruined
through ignorance and deliberate sabotage. From the viewpoint of waste
it might have been better ... if the mines had been developed byforeign capital.1
The Ridder mines covered an area of 1 5,000 square miles and were reopened
after the Revolution by the Lena Goldfields, Ltd., Type I concession with
the long-term financial assistance of the Deutsche Bank.2
The Ridder lead-zinc-silver smelting plant established by the Urquhart
concession was not let out to concession after the Revolution, although
extensive negotiations took place between the Russo-Asiatic Company and
1J. D, Littlepage and D. Bess, In Search of Soviet Gold (New York : Harcourt Brace,
1938), P- *66-
' Times (London), November »o, 1918. V. I. Kruglyakova, op, cit„ omits all mention
of either the mining or smelting of lead, zinc, or silver ores by Lena Goldfields, Ltd,
However, Soviet sources (see page 96 below) confirm Lena operations.
Non-Ferrous Metal Mining and Smelting; The Manganese Concessions 77
the Soviets toward this end.' In 1924, the Ridder smelter became part of the
Altai Polymetal Trust, which was formed in lieu of the rejected Urquhardt
concession. A commission under the direction of a Professor Gubkin approved
a plan for reorganization of the non-ferrous mining and smelting industry
submitted by an engineer, van der Better;4 however, apart from uniting the
copper smelters at Kyshtim, Tanalyk, and Kalat with the lead-zinc smelter at
Ridder under the same organizational roof, no significant development of
mines and smelters was undertaken until the Altai Polymetal Trust made a
technical-assistance agreement with Frank E. Downs, who became Technical
Director (at $20,000 per year) in 1928."
A New York corporation held the Belukha concession for mineral prospect-
ing in the southern Altai mountains from 1925 to 1927.*
Tabic 5-i summarizes the sources of metallic zinc production for 1926-32.
In 1926 the only operating zinc smelter was the old Sadon-Buron (Alagir),
built by a prerevolutionary French concessionaire and operated by Zvet-
mctzoloto (the Non-Ferrous Metals Trust) but fed with ore mined by
'concessions. '* Sadon-Buron produced r,888 metric tons of metallic zinc—the
total Soviet production. By 1932, production had risen, with the help of
foreign engineers, to 4,892 metric tons: just under 36 percent of total Soviet
zinc metal production.
The Lena Goldfields concessions of 1925 included the construction of a
new lead-zinc smelter at Altai, fed with ore from the prewar Ridder mines.
The new Altai smelter was built more or less on schedule, started, and
expropriated in 1930. In 1932 the plant produced 4,578 metric tons of zinc
metal, or almost 34 percent of Soviet production.8
' The agreement signed by Krassin and Urquhardt, and later rejected by Lenin,
covered an extraordinarily large territory in Siberia, including twelve developed
metal mines, coal mines, four non-ferrous smelters, a refinery, iron and steel mills,
twenty sawmills, the Ridder lead-zinc mines and smelter, the Spassky copper mines,
Karaganda coal mines, and other mine and smelting properties in the Altai and
Urals regions. (Le Petit Parisian, October 27, 1922.) The significance for this study
is that all the properties were in good technical condition and ready to be operated.
[U.S. Embassy in London, Report 1717, September 26, 1022, in U.S. State Dept.
Decimal File, 316-136-172/5)-]
* Igvestia, No. 32, February 8, 1924.
s U.S. Embassy in Berlin, Report 31 14, January 21, 1028 (316-136-51?)- In 1927-8
the Altai Polymetal Trust was able to smelt only 67 kgs of silver. (Kruglyakova,
op. cit., p. 152.)
* U.S. State Dept. Decimal File (316-130-1240).
' Kruglyakova, op. cit., p. 1 52, reports the ore was mined by a concession (unnamed).
It is inferred that this was the Siemens-Schukert concession.
' Liubimov, op. cit., states that the smelter was not built. Amtorg, op. cit., IV, iyzg
p. 33, and other Soviet sources make clear, however, that it was in fact completed
in 1929-30. The Engineering and Mining Journal, October 1936. has photographs
of the smelter and supporting operations.
78 Western Technology and Soviet Economic Development, igiy-xg$o
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Non-Ferrous Metal Mining and Smelting; The Manganese Conceaions 79
The Tetyukhe mines (Biyner and Company), another Type I concession,
made a significant contribution to Soviet foreign exchange earnings from 1927
to 1930 by the export of zinc concentrates. The company re-established the
mines, and until the smelter was ready to produce zinc metal, the zinc ore
was beneficiated and exported. Conolly gives the exports as 9,000 tons in
1927, 15,000 tons in 1928, and 18,000 tons in both 1929 and 1930. Exports
dropped to 6,000 tons in 1931 as the new smelter came into production. 8
The Tetyukhe (Bryner) concession, signed in 1924, exceeded its annual quota
of 20,000 tons of 2inc and 10,000 tons of lead concentrate by 1928. The plant
was equipped with the latest imported equipment in the flotation mill. The
company then proceeded to build the Belovo zinc smelter to produce 5,000
tons of lead metal and 10,000 kilograms of silver per year, by 1932 producing
30 percent of Soviet zinc metal. 10
In 1937-8 lead ore was mined and concentrated at five locations. The
Ridder mines of the Altai Polymetal Trust produced 3,699 tons, and the
prerevolutionary Alagir mines produced a little in excess of 2,000 tons of
lead concentrates. The Auli-Atinski mines of the Atbassvetmet produced
just over 1,000 tons of concentrate. The Tirinski Development Company, a
privately leased operation, produced just under 150 tons, and the Igergol
mine of the Svintsovii Artel produced 16 tons." In brief, these were small
operations incapable by themselves of supporting a large-capacity smelter,
Table 5-2 SOURCES OF LEAD METAL PRODUCTION, 1927-8
Smelter Method of
80 Western Technology and Soviet Economic Development, igxj-ig3o
but able to produce comparatively small quantities of metallic lead from local
smelters, as shown in table 5-2.
A concession was also granted in December 1935 to operate the Priamur
Mines, developed in the Far East during the tsarist period. The concession
was Bet up to last for thirty-six years, the first three of which were to be
spent prospecting—at a cost of 400,000 rubles—in Primorska Gubernia. Aland rental of 1.25 rubles per hectare and a royalty on production were
payable; the concessionaire undertook to build a port and establish a smelter. 12
Production did not begin before 1930.
COPPER MINING AND SMELTING INDUSTRY; SILVER
Copper ore mines flourished in prerevolutionary Russia in the Urals, the
Caucasus, the Khighiz Steppes, and Siberia. These mines were high-grade
operations and did not beneficiatc low-grade ores; the Atlas Mines, for exam-ple, operated on 10-20 percent copper ore and the Spassky on 7-22 percent
ore. Geographical isolation required completely self-supporting operation;
and all the mining complexes made iron products and owned and operated
forests for charcoal. Most of them also operated coal mines, power facilities,
and communications. The Kyshtim mine even operated a boot and shoe
factory to supply its miners with work boots. All had granaries and food stores.
Tsarist Russia was almost self-sufficient in copper metal production.
Output in 1910 was 22,000 tons and in 1912 about 33,000 tons of smelted
copper, of which a small quantity was exported. Imports consisted only of
electrolytic copper, of which production was insignificant.
Mining operations collapsed with the Revolution. In 192 1-2 only an
insignificant 13,266 tons of copper ore was mined from the single operating
mine, the Korpushinsk, which was part of the Kalatinsk smelter complex in
the Urals. A shipment of copper ore in 1922 enabled the Kalatinsk smelter
to smelt the first copper metal since 1918, but as Pravda said, 'AH other copper
establishments in Russia are now in a state of technical preservation.' 13
Between 1922 and 1925 only the Kalatinsk smelter was in operation.14
Uralmed (the Urals Copper Trust) was formed in December 1921 and took
over operation of copper mines in the Verkh-Isset, Revdinsk, and Syssert
districts, together with the Kalatinsk, Lower Kyshtim, Kishmino-Kluchevsk,
" Ekonomichetkaya Zhizn, No. 188, August 20, 19*4; and U.S. State Dept. DecimalFile, 3x6-136-357.
'* No. 184, August 17, 1922.14 The Soviet* claimed that copper smelters were in a state of 'technical preservation'
because there was no demand for copper. However, copper metal imports in 1913were only 1,1 50 tons, whereas they were 5,335 tons in 1925-6, 10,921 tons in 1926-7,and 23.087 tons in 1927-8. About one-half of the imparts came from the UnitedStates. (Ekonomickeskaya Zhizn, No. 161, July 17, 1929.)
Non-Ferrous Metal Mining and Smelting; The Manganese Concessions 81
and Karabash copper-smelting works. Most of the mines and all four smelters
were in working order.
Similarly, the Caucasus mines and smelters, the Spassky and Atlas works
in the Kirghiz, and the Julia mine in the Yeniseisk region were closed.
Briefly, in 1925, some eight years after the Revolution, of the half-dozen
smelters and the dozen copper mines which had survived more or less intact,
only the Kalata smelter in Uralmed was producing any copper metal at all:
2,807 tons °f copper meta! in 1923-4 and 5,588 tons in 1924-5. The missing
ingredient for production was the technical ability to get existing mines and
smelters into production. This ingredient was provided by the Lena and
Siemens concessions and by Type III technical-assistance agreements.
Considerable emphasis was placed by the U.S.S.R. on the development of
its non-ferrous potential, clearly for strategic reasons. By the end of the 1920s,
the non-ferrous mining and smelting industry (lead, zinc, copper, and stiver)
employed 65 engineers and 157 technicians from the United States alone.15
The overall plan for reconstruction was developed by an engineer, van der
Better, under the auspices of Uralsvetmet,18 which united the copper smelters
in the Urals with the lead-zinc complex at Ridder. Capital sums of $5 million
were then allocated to Kyshtim and Ridder and J 1.5 million to Kalata.
The component sectors of the copper mining and smelting industry are
divided (table 5-3) into seven groups. The largest in terms of 1927-8 produc-
tion was the Kalata-Karabash combine (Group I), consisting of numerousmines and smelters developed before the Revolution. The chief engineer for
this group was Littlepagc, 17 and with the aid of American engineers the group
rebuilt ore tonnages and copper smelting substantially after 1925. Group II
also consisted of Urals mines and smelters, and was taken over by the LenaGoldfields concession in 1925. The tsarist-era Gumishev copper smelter wasrestarted, and a new much larger smelter, the Degtiarka, was completed by1930. By 1927 Lena had the new smelter, including a 500-ton-per-day concen-
trating plant, under construction. This was the first use in the U.S.S.R. of
selective flotation of ferrous sulphides in copper production. 18 The mines to
feed Gumishev and the new smelters were reorganized tsarist mines at Soyu-zelski and Degtiarinskii. In 1928 these were also producing 53,000 tons of
sulphur pyrites—the first production of pyrites in the U.S.S.R. 18 By the end
'• V. Karmashov, 'Non-Ferrous Metal Industry of Soviet Russia,' Engineering andMining Journal, CXXX, July 24, 1930. Karmashov was employed in the TechnicalBureau of the industry. These engineers, such as Woods who supervised coppermining for Armmed, and Lerva, an engineer at Uralmed, were hired on renewabletwo-year contracts (316-136-512).
" Izvettia, No. 33, February 8, 1924." Littlepagc and Bess, op. cit., p. 108.
" ToTgovo-Promyshletmaya Gazeta, No. 2a 1, September 28, 1927." Kruglyakova, op. cit., p. 1 50.
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Non-Ferrous Metal Mining and Smelting; The Manganese Concessions 83
of 1927, Lena Goldfields engineers had blocked out more than six million
tons of 3,5 -percent copper ore at these mines.
The Group III mines were developed by the Kalata combine to feed the
$38 million Bogomol copper smelter. This latter was brought into production
in the Five-Year Plan and also built by Western companies. Groups V and
VII were in the development stage, and mines in Group IV, including the
tsarist Julia mine, were being developed to feed the new Bashgortrest smelter,
also built after 1930.
The Caucasus smelters and supporting mines were renovated (one with the
aid of a Siemens-Schukert concession) and later grouped into the Armmed
trust. The Zanguezour district group of copper mines, including the Kovart
and Bashkend mines, which had been in operation since 1840, were renamed
the Lenin Group and put into the Armmed trust. It is known that they came
through the Revolution in good operating condition and required only to be
placed into production. In 1927-8 they produced 53,619 tons of copper ore.
This ore was shipped to the old prerevolutionary Ougourchaisk copper
smelter, renamed the 'Red November', and yielded 665 tons of black fired
copper metal, or about 75 percent the prewar capacity. 20
The Atbastvetmet trust, in the Kazakh area, did not make its contribution
until late in the 1920s. This trust included the Karsak Pai 5,000-ton smelter,
with a 250-ton-per-day flotation plant which had been begun as a pre-
revolutionary enterprise and was completed at the end of the 1920s, and
also included mines opened up before the Revolution.* 1
Two trusts were completely new: the Bogomolstroi and the Bashgortrest, in
the South Urals. These were extensively aided by Western companies, parti-
cularly the Southwestern Engineering Corporation and Arthur E. Wheeler
of the United States.82
The reconstruction and expansion of the copper-mining and smelting
industry can be divided, then, into three segments. There was the reconstruc-
tion, somewhat delayed, of the prerevolutionary copper smelters in the Urals
(Kalata and Karabash complexes) and the Caucasus. Second, and quite
distinct from these operations were the Type I pure concession operated by
Lena Goldfields in the Urals around the old Gumishev and Polevsky smelters
and the new i2,ooo-ton Degtiarka smelter (which replaced Gumishev), and
" Ibid., p. 104; and U.S. State Dept. Decimal File, 316-136-1066.
"J, W. Wardell, In the Kirghiz Steppes (London: Galley Press, 1961); and letter
from Wardell (manager of the prewar operation at Karsak-Pal) to the writer, 1965.
" Southwestern Engineering Corp., of Los Angeles, had a technical-assistance
agreement with the Non-Ferrous Metals Trust for the design, construction, andoperation of non-ferrous metal plants. Archer E. Wheeler and Associates, of NewYork, had a technical-assistance agreement with the same trust for equipment of
the plants. [American-Russian Chamber of Commerce, Economic Handbook of the
Soviet Union (New York: 1931), p. 101.] See Vol. II.
84 Western Technology and Soviet Economic Development, 1917-1930
Non-Ferrous Metal Mining and Smelting; The Manganese Concessions 85
the Siemens-Schukert Type I concession at the Arhaham mine, south of
Batum, in the Caucasus. Third, construction of three new smelting plants
began within this period, but these had little impact on copper metals output
until the early 1930s. They included the completed Karsak Pai smelter, begun
before the Revolution, and two new smelters: the Bogomolstroi and the
Bashkirtrest, in the South Urals.
Although technical-assistance agreements {Type III) were successfully
utilized for construction of copper smelters, it is not clear that agreements
made for assistance to the copper mines were equally successful before 1930,
Chief engineer Goncharov of Bogomo!, while on a study visit to the United
States in 1927, invited an American engineer, McDonald, to work at Uralmed,
the Urals copper trust responsible for new copper-mine development.
MacDonald was installed as manager of all underground mining and adviser
on planning mine extensions, particularly for the Kompaneisky group—the
largest of those supplying Bogomol. There was overt hostility on the part of
Russian mining engineers, and McDonald apparently beat a retreat back to
the United States without achieving very much in the way of planning. 23
At the end of the decade, these trusts were absorbed, along with the gold
industry, into Svetmetzoloto, and two further technical-assistance agreements
were then made, with the W. A. Wood Company and with Norman L.
Wimmler, both of the United States; but these had no impact within this
decade.24
In 1928 the Lena Goldfields Company produced 80 percent of Russian
silver. The Tetyukhe concession, in the Far East, was required to produce
6,000 kilograms of silver per year. It was reported in 1928 that Tetyukhe was
fulfilling its agreement. Thus in 1928 all Russian silver was produced by
foreign concession.
Even if the technical competence to operate the zinc, lead, silver, and copper
mines had been available, the Soviets would have faced enormous difficulties
in attempting to restart operations without Western help. These mines had
been operated by Western companies before the Revolution, and records of
some twenty-five years of work—most importantly of drilling experience and
the solution of metallurgical problems—was stored in the home offices. This
accumulated knowledge was required to make rational progress, certainly in
underground operations. 85 Without it the Soviets could perhaps at some point
have restarted the mines and smelters, hut only at an enormous cost.
" Pravda, No. 239, October 16, 1929.
" American-Russian Chamber of Commerce, op. cit., p. 101.
" Urquhardt estimated that the complete records of 100,000 feet of drilling in Siberia,
Caucasus, and the Urals, together with the geological evaluation of thousands ofRussian ore deposits, were stored in London and unavailable to the Soviets,
\Timts (London), October 24, 19x2]
86 Western Technology and Soviet Economic Development, 1917-IQ30
A NON-COLLUSIVE DUOPSONY;THE MANGANESE CONCESSIONS
The Soviets acquired modern mining and transportation facilities for their
manganese deposits at Chiaturi and Nikopol, acquired foreign exchange, andfinally shattered American foreign policy concerning oans to the U.S.S.R.,in a series of astute business agreements with the H*cJman-Guaranty Trustgroup in the United States and the Rawack and Grunfeld group in Germany.28
In 1913, tsarist Russia supplied 52 percent of world manganese, of whichabout 76 percent, or one million tons, was mined from the Chiaturi deposits
in the Caucasus. Production in 1920 was zero, and by 1924 had risen only to
about 320,000 tons per year. The basic problem was
that further development was seriously retarded by the primitive equip-ment, which was considered grossly inadequate even according to prewarstandards.*'
The Chiaturi deposits, situated on high plateaus some distance from Batum,were mined in a primitive manner, and the ore was brought on donkeys fromthe plateaus to the railroads. There was a change of gauge en route, and themanganese had to be transshipped between the original loading point andthe port. When at the port the ore was transferred by bucket: a slow, expensiveprocess.
The other deposits of manganese were at Nikopol in the Ukraine and,although somewhat smaller than those at Chiaturi, were significant. Thesedeposits were reopened, before the Rapallo Treaty, by a group of Germancompanies, through a joint-stock company, Tschemo A-G., with a 30-ycarmonopoly grant The Soviets then demanded a 55-percent share of TschemoA-G., and, when refused, nationalized the company. They then began negotia-
tions with W. Averell Harriman and the Deutsche Bank, and the Rawack andGrunfeld group.88
On July 1 a, 1925, a Type I concession agreement was made between theW. A, Harriman Company of New York and the U.S.S.R, for exploitation ofthe Chiaturi manganese deposits and the extensive introduction of modernmining and transportation methods. In the first full year of operation, theHarriman syndicate was able to extract 763,000 tons of ore.
" Ai this study la concerned with the impact of technology on the economy, theHarriman negotiations are not described. The interested reader is referred to over300 pages of documents in the U.S. State Dept. Decimal FUe, 316-138-13/331, andthe German Foreign Ministry Archives. Walter Duranty described the Harrimancontract at utterly inept' and von Dirksen of the German Foreign Office as 'a rub-ber contract.' The full contract was published [Vysshii sovet narodnogo khoziaistva,CowettwnAgrttment Bttvxen the Government of the U.S.S.R. andW. A. HarrimanW Co. Inc. of New York (Moscow: 1925)].
" Atntorg, op. tit., II, No. 13 (December 1, 19*7), 8.* U.S. State Dept. Decimal File, 316-138-50.
Non-Ferrous Metal Mining and Smelting; The Manganese Concessions 87
Harriman was associated with Gelsenkirchner Borgwerke A-G. and the
Disconte Gesellschaft, to whom a royalty of 81 per ton of manganese ore was
payable as settlement for prerevolutionary interests. As the result of a London
conference on June 29, 1925, this group obtained 25 percent, 51 percent
remaining with Harriman, and the balance going to other interests, including
an English group.4*
Under the Harriman concession agreement, $4 million was spent on
mechanizing the mines and converting them from hand to mechanical opera-
tion. A washer and reduction plant were built; and a loading elevator atPoti
with a two-million-ton capacity and a railroad system were constructed,
together with an aerial tramway for the transfer of manganese ore. Theexpenditure was approximately 82 million for the railroad system and $1
million for mechanization of the mines.30
After the conclusion of the Harriman agreement, the Soviets negotiated
with Rawack and Grunfeld A-G. for the exclusive sales and export rights for
the Nikopol deposits. The latter also mechanized the mines with Germantechnical assistance.31 The Nikopol-Nikolaev loading equipment was rebuilt
by German engineers, using German and British equipment, at a cost of
two million rubles on nine months' credit.32
Table 5-5 MANGANESE PRODUCTION IN U.S.S.R., 1913-29
V.nr Chiaturi /p™'*^°i,j Total U.S.S.R. Percent ProducedYear(Harrimm,) '^Srfj Production by Conation*
88 Western Technology and Soviet Economic Development, 1917-1930
By the end of 1925, the Soviets had thus made agreements on both their
major manganese deposits. In both instances they had previously pushed
production as far as possible, given the primitive state of mines. To increase
production they then had to turn to Western technical assistance and equip-
ment. The agreements differed. Whereas Harriman and his German associates
were committed to make specific royalty payments whether or not the output
was sold, and also to undertake major capital improvements, the Rawack andGrunfeld group was acting as a sales agent and was paid for its technical
assistance. However, so far as the world market was concerned, the Soviets
had now placed both concessionaires in a competing position. Table 5-5
indicates that both concessions were able to raise output; this was also their
undoing. Prices began to fall, and both concessionaires got into trouble with
rising costs and declining returns.**
Walter Duranty, writing in the New York Times considered the original
Harriman contract to be 'utterly inept,' and said that after three years of a
'checkered and unprofitable existence, (it was) about to expire quietly.' 3'
At the time of the Harriman withdrawal it was suggested that a fall in world
manganese prices made continued mining of the Chiaturi concession unprof-
itable; the Soviets certainly utilized the Harriman price policy as its reason
for the failure of the concession.34
Although market prices for manganese ore dropped in the late 1920s, the
decrease was hardly sufficient to force a well-managed mining company out
of business. In 1937-8 manganese quotations fell about 2 cents per long ton
unit, from the 40-cent average for i926.Pricesin 1929 touched 35 cents toward
the end of the year, but it will be noted that this reasonably steep decline
came after the surrender of the concession. Most metal prices fluctuate, anda fluctuation of 2 cents to 5 cents per long-ton unit is not of major consequence.Even if some actual contract prices in 1928 were below quoted market
price—not an unusual occurrence—they would be reflected fairly quickly in
the open market quotations.
Essentially the reasons for failure appear to be threefold
:
1. The harsh treatment by the local Georgian government, and the
unfavorable attitude of the Soviet government soon after the signing of the
agreement in 1925. In one year the concession had to endure visits andinspections from various control commissions on 127 working days,
"* U.S. Consulate in Hamburg, Report iz, January 16, 1937 (316-138-12/331)." Nea York Times, June 17, 19*7, III, p. 3, col. 5. Also see J. E. Spurr, 'Russian
Manganese Concessions,' Foreign Again, V, No. 3 (April 1927), 507. Spurr consid-ers that the terms of the Harriman concession were too hard in the face of worldcompetition.
** Bank for Russian Trade Review, No, 14, December 192S, p. 15.
Non-Ferrous Metal Mining and Smelting; The Manganese Concessions 89
2. High production costs. The 'professional proletarians' were constantly
demanding more wages.
3. Weaknesses in the original contract: particularly the requirement to pay
between $3.00 and 84.00 royalty per ton of ore irrespective of tonnage
removed.
THE IMPLICATIONS OF THE HARRIMAN FAILURE
The Harriman negotiations had begun in the United States at the end of
1924 with unofficial representatives of the Soviet government. The State
Department was unaware of the negotiations, and Harriman did not inform
them.38 The first word of the agreement reached the State Department via a
speech made by Prime Minister Ramsay MacDonald in the House of Com-mons and reported back by the American Embassy in London.
As word of the negotiations spread, Western governments protested and
inquired whether there was a change in United States government trade
policy.37 The British government, for example, pointed out that other
companies had been trying to get the concession and that the Soviets desired
an agreement for political purposes only:
Viz., for the purpose of establishing the fact that a big American con-cern had taken the properties which belonged to foreign concerns andthereby recognizing the right of the Soviet Government to nationalize
property.38
The Harriman negotiations caused some confusion in the State Department,
which for reasons not clearly established by the files did not wish to initiate
an investigation, although obviously disturbed by the whole affair,39
Harriman was not the first businessman to attempt to circumvent United
States policy on trade with the U.S.S.R. There were attempts throughout
the 1920s, and the policy had in fact been substantially eroded by 1929.
Policy up to 1927 was to view long-term loans and credits with disfavor if they
'• U.S. State Dept. Decimal File, 3 16-138—17/19, Washington to London Embassy:'The memorandum transmitted by you embodies the first information received bythe Department concerning the concession other than that which has appeared inthe public press.'
" The protests of the German, Belgian and Georgian (exile) governments are in dieU.S. State Dept. Decimal File, 3 16- (3 8-1 7/20/4 1/84. The German Foreign OfficeArchives contain a letter from von Dirksen to the United States Embassy in Berlinconcerning the effect of the Harriman concession on German firms and, in diplo-matic language, implying a breach of agreement.
" U.S. State Dept. Decimal File, 316-138-18. Memorandum from U.S. Embassyin London dated October 28, 1924.
" Such a move, i.e., to initiate an investigation, was held to be 'very unwise.' (Memor-andum, State Dept. to Commerce Dept., U.S. State Dept. Decimal File, 316-138-28.)
90 Western Technology and Soviet Economic Develojbneiit, 1917-1930
involved floating a loan in the United States or using American credit for thepurpose of making advances. The State Department stated their policy onthree occasions during the 1920s, each time as the result of an attempt ofAmerican financiers to utilize a German front group to advance credit tothe U.S.S.R.
On July 15, 1926, the State Department informed the New York TrustCompany that it would view with disfavor an arrangement to discount certainRussian obligations endorsed by German firms (40 percent) and the Germangovernment (60 percent), the discounting to be carried out by American banks,and the financing of Soviet purchases of equipment to be completed inGermany.
On October 14, I927 Percival Farquhar was informed by the State Depart-ment that a scheme to sell $20 million of bonds in the United States in orderto place the proceeds at the disposal of the Soviet government for the purchaseof goods and materials in Germany would not be viewed with favor.
It must be made clear the State Department argument in these cases didnot rest upon non-recognition of the U.S.S.R., but upon the fact that thebenefits of the loan would accrue to German rather than United Statesmanufacturers. The State Department had not interposed, for example whenChase National in I925 arranged a short-term credit for cotton shipmentsdestined for the U.S.S.R., nor in the provision of loans by the InternationalHarvester Company.Their position was reviewed in the case of the American Locomotive
proposal in October 1927 and weakened to the extent that no objection wasraised to American manufacturers of railway equipment granting long-termcredit to the Soviets for the purchase of locomotives, cars, and other railroadmaterials from the United States*The only position not breached in late 1927 was that on long-term loans
to the Soviet government. The Harriman concession was utilized by theSoviets to give the coup de grace to what was left of American trade policywith Russia. Harriman was induced to accept long-term bonds as compensa-tion for expropriation.
Discussion between the Harriman interests and Soviet representatives inJuly and August 1928 led to an agreement to cancel the concession, and theSoviets agreed to. repay Harriman the estimated $3,500,000 investment.However, Harriman was 'to arrange a commercial loan for the Soviet authori-ties to develop the manganese industry.' The acceptance by Harriman of a
" This mi apparently decided at the Presidential level. There is the follow™ hand-
fiU co^ofT&£*£ iKe"?y °f
,
DiVisi°n-
°f^E^/BSme copy of the letter to American Locomotive: 'Drafted after discussion of thematter by Secretary with Mr. Mellon, Mr. Hoover and the Preafd™
Non-Ferrous Metal Mining and Smelting; The Manganese Concessions gi
long-term credit arrangement and position as Soviet fund-raiser as compensa-tion for expropriation was the final breach in the American policy of restriction
on trade with the U.S.S.R.41
According to the United States Commercial Attache in Prague, after theHarriman collapse the Soviets went about Europe bragging they could borrowmoney from Harriman at 7 percent; therefore their credit must be good."With the departure of Harriman, the Soviets had two sizeable manganese
deposits, both with up-to-date mining and loading equipment supplied oncredit terms. In addition, they had Rawack and Grunfeld to continue operatingthe Nikopol deposits, take over operation of the Chiaturi deposits, and continueas exclusive sales agent for the U.S.S.R. on the world market. As Rawack andGrunfeld now controlled output from both deposits, they were no longer inthe position of duopolists competing price down to zero, although they still
had to face competition from newly opened deposits in Brazil and West Africa.
It is also very interesting to note that one-halfof the 1927-8 output of Chiaturiwas from the Perevessi Hill deposit,13 the high-grade area which had beenleft out of the Harriman concession. In other words, Harriman had beeninduced (on top of all else) to mechanize production of the low-grade depositsand install loading facilities so that the Soviets could take advantage of these
low-cost loading facilities to ship high-grade, almost surely low-cost, ore.
Sales of manganese ore were further facilitated in 1929 by the negotiationof a five-year contract with United States Steel Corporation for an annualsupply of between 80,000 and 150,000 tons.44
This was the State Dcpt. assessment (.116-124-45). Harriman's recollection issubtly different: In 1926 I was back there on business, representing ,1 groupthat was mining manganese in the Caucasus. I found Stalin and Trotsky in dis-agreement about foreign concessions like ours. I talked to Trotsky for four hoursconcluded that we should give up the concession and got our money out—paid infull with interest and with a small profit.' ('How Hiirriirum "Earned a Dinner" fromKhruscnev , Life, August q, 1963, p. 29.)The interested reader is directed to the four-page report from the attache, whichsummaries very well the impossibility of normal commercial dealings with thet-ommunists, although, as the attache pointed out, 'Harriman and Company arenot saying very much.' (316-138-33*/$.)Kruglyakova, op. cit., p. 100,
Ektmomicheikaya Zhizn, No. J82, August 10, 1929.
CHAPTER SIX
Gold Mining, Platinum, Asbestos, and
Minor Mineral Concessions
GOLD MINING AND FOREIGN CONCESSIONS
Russia has excellent gold ore reserves. In tsarist times the Lena River gold
mining area in Siberia, reputedly one of the richest in the world, measured by
both extent of reserves and metal content of the ore, was operated by conces-
sionaires. In 1 91 3 there were 39 foreign and Russian companies operating
770 mines in the Lena River area; of these 121 were actually producing gold
and employed over 10,000 workers. 'These mines had excellent equipment,
full electrification and large hydroelectric installations. . . Z 1
British companies held several concessions from the tsarist government,
including some for development of the Siberian gold and platinum mines in
the Lena River region. These were developed as self-supporting industrial
entities complete with iron and steel plants, smelters, and agricultural and
small-consumer goods manufacturing works. The departure of the Western
owners with the Revolution significantly reduced Russian gold production.
There was a catastrophic decline in the condition of the Siberian gold
fields, ofwhich Lena-Vitim was the most important, from about 1921 onward.
The Urals' 1913 gold production of 25,700 pounds dropped to just over 8
pounds in 1921, the West Siberian output from 7,300 pounds in 1913 to 33
pounds in 1921, the East Siberian output from 103,000 pounds in 1913 to
8 pounds in 1921, and the Yenessei output from 5,000 pounds in 1913 to
140 pounds in 1922.*
The Siberian Revolutionary Council suspended operations in the Lena-
Vitim area in early 1921, with the arguments that the labor force of 9,000
was producing significantly less than before the war and that it was costing
* Ekanomichakaya Zhizn, No. 196, September a, 1931.
* Irvtttia, No, at], September u, 191a.
Gold Mining, Platinum, Asbestos, and Minor Mineral Concessions 93
two zolotniks of gold to produce one zolotnik. However, the Council was
overruled by the Soviet of Labor and Defense, and the fields were ordered to
continue working. Shortly thereafter, the 1920 decree which had forbidden
private interests from mining gold was replaced by a decree authorizing
special concessions for gold and platinum operations. This was followed by the
organization of the Lenzoloto trust in December 1921. This trust had the
exclusive right to mine gold on the right bank of the Lena River, although
individual prospectors continued working both elsewhere and for Lenzoloto
itself on a contract basis.
It was argued in Ekonotnicheskaya Zhisn that the mines had suffered from
two years of civil war in the Urals, were badly equipped, and were exhausted
by 200 years of continual mining. 3 However, the report which formed the
basis for the foundation of Lenzoloto gives a more detailed and substantially
different picture. In substance, the gold mining equipment was in good
operating condition.* However, the reasons for conversion into a trust are
obvious from the catastrophic decline in output.
Mining of gold by prospectors almost ceased in 1921, as it was im-
possible to send supplies to the prospectors and also there were persistent
attempts on the part of local organs to turn prospectors into ordinary State
workmen, who receive payment in money and goods regardless of the
amount of gold they find.5
Conditions did not improve much in 1922-3. Employment dropped to just
under 5,000 men because of lack of food and supplies; there were financial
difficulties and equipment needed repair. It was believed that the richer gold
areas would only last another seven to eight years. Dredges, not manufactured
in Soviet Russia, were required to develop the low-grade areas on a profitable
basis. The average gold content was 65 zolotniks per cubic sazhen, while the
average of the extensive poorer area was in the neighborhood of 44 zolotniks
per cubic sazhen. An article in Ekonomicheskaya Zhizn recommended turning
part of the Lena fields over to private enterprise in accordance with the 1921
decree and also recommended the purchase of foreign dredges to operate
poorer areas. 8
Conditions apparently had not improved much one year later. Only the
Feodosyer placer among the hydraulic operations was working, and under-
ground production was curtailed. There were the perennial financial problems,
and no move had been made to obtain the 17-foot Bucyrus dredge, ordered
from the United States in 1916 and stored at San Francisco, It was estimated
* Ekonomicheskaya Zhisn, No. 172, August 4, 1922.
* Ekmomichttkaya Zhizn, No. 196, September 2, 1922.
' Ekonomicheskaya Zhizn, No. 172, August 4, 1922.
* Ekonomicheskaya Zhizn, No. 196, September 2, 192a.
94 Western Technology and Soviet Economic Development, 1917-1930
it would take two years and another $1.5 million to move it to Siberia. Laterin the year the government speeded up payments to Lenzoloto to relieve thefinancial crisis but refused to import the dredge, as low gold reserves would notwarrant the expenditure.' However, dredging was the only solution to thelong term Siberian gold problem.
The situation was so abysmally bad that in a 1923 report on Soviet goldmines in Ekonomieheskaya Zhizn, it was seriously suggested that it was nolonger worthwhile to continue working the deposits. Production was too smalland the costs too high to justify the expenditures of materials and labor. Analmost unbelievable cost-revenue ratio of 25:1 was quoted. A dredge wasconsidered to be the only solution,*
In mid-1923, a French mining expert, Professor E. N. Barbot-de-Marni,was hired by the Soviets to make a report on the Siberian mines, includingthose in the prewar Lena group. The report stated that there had been noillicit digging of gold, but that work had been concentrated in high-grademines, while low-grade mines were ignored. The equipment was prewar andutilized in an inefficient manner. Barbot-de-Marni pointed out that, althoughthe Lena mines possessed the most advanced drilling equipment in Russia(forty steam drills of the Keystone type), no exploration and developmentwork was in progress. In brief, the higher-grade properties were workingand so could work at a profit, whereas lower-grade properties and explora-tion work required for future development were ignored. Barbot-de-Marni'srecommendation was for state assistance to get development under way.In mid-1923, thirty-four leasing contracts were made with private individ-
uals and enterprises in the Lena-Vitim area. There were seventeen con-tracts in the platinum mining areas of Semipalatinsk. Nine mines were leasedin the Northern Yenessei and five in the Southern Yenessei district, togetherwith eleven gold mines in the Altai Mountains.8
After 1925, gold began to assume its key role in Soviet development as amajor earner of the foreign exchange required to pay for imports of foreignequipment and technology utilized in the industrialization program. Goldmining was, consequently, put in the vanguard of the Soviet mineral exploi-tation program: an effort characterized by Shimkin as 'the merciless and insati-able Soviet quest for gold.' 10
' Ekonotmchetkaya Zhizn, January 16, 1923. The original coat of the dredge was»49S,307. of which »4J3.«35 was paid before the Revolution. However, Sparesfreight, customs, and assembly required an estimated total expenditure of81,53:1,836.
• Ekonomieheskaya Zhizn, February 20, 1023.• Ekonomieheskaya Zhizn, No. 143, June 29, 1923.
10 DemitriB, Shimkin, Minerals;A Key toSoviet Power (Cambridge: Harvard, 1951)
Gold Mining, Platinum, Asbestos, and Minor Mineral Concessions 95
The Lena Goldfields, Ltd. (United Kingdom), concession was concluded
on April 30, 1925. It was to extend for a period of thirty years in the Lena
gold mines and for fifty years in the Ural and Altai Mountain districts. The
area included in the concession was that previously leased from the tsarist
government and operated by a Russian subsidiary, the Lensky Zolotopromish-
lennoie Tovarichestvo. In the 1925 agreement the properties of the former
Sissert copper mines and the Altai District Mining Company were also operat-
ed by Lena Goldfields.
The Lena concession therefore, covered the following properties: 11
1. The Sissert copper mines (described in chapter 5).
2. The Nikolopavdinsky platinum mines, reportedly. However, nothing
has been traced of any post-revolutionary development of this property
by Lena Goldfields.
3. The copper, lead, and zinc deposits on the Irtish River (discussed in
chapter 5).
4. The north Kuznetsk (Kiselov) coal mines (discussed in chapter 3).
5. The anthracite mines at Yegoshin in the Urals (discussed in chapter 3).
6. Gold mines on the Lena-Vitim Rivers in Siberia. This is the only
development covered in this chapter, and a major part of the Lena
complex.
7. The Zirianovsky, Zmeynogorsky, and Pryirtishky districts (discussed in
chapter 5).
8. The copper and iron smelters at Sissert and Revdinsky (discussed in
chapters 4 and 5).
9. The Degtiarinsky copper mines (discussed in chapter 5.)
10. The Gumeshevsky copper smelter (discussed in chapter 5).
11. Wire- and nail-making factories in the Urals (discussed in chapter 13).
12. The Bodaibo railroad in theLena-Vitim area, the Degtiarinsk railroad in
the Urals, and the shipping system on the River Lena, under a separate
agreement with the People's Commissariat ofWays and Communications.
The concession did not include Soviet participation in either operations or
management, but the Soviet government received a royalty equal to 7 percent
of the total output of gold, and the concessionaire received the right to export
any surplus duty-free.
The company was granted unrestricted freedom of hiring and firing tabor,
and, in regard to social insurance and railroad rates, treatment equal to that
afforded government trusts.
11 Based on an interview with Lyman Brown by the United States Consulate at Riga,
Latvia in May 191s (31 6-1 36-4 19). There is some doubt whether the Nikolopav-dinsky platinum mines were operated by the Lena concession, but they were part
of the tsarist-granted prcrevolutionary concession.
96 Western Technology and Soviet Economic Development, igiy-ig^o
Arbitration of disputes was to be by an arbitration court composed of anequal number of representatives from both sides, with an umpire selectedfrom either the faculty of the Freiburg Mining School, in Saxony or the King'sMining School, in Stockholm.
The agreement was a departure from previous agreements in that it
permitted extensive industrial and commercial operations without the joint
management of the Soviet government, and in addition gave the conces-sionaire practically unlimited control of real property (at least on paper),
although title was not established, together with control of labor and the right
of unrestricted export. 1*
In 1928 the Lena Goldfields Company was producing 35 percent of all
the gold mined in the Soviet Union.13 It was also by far the most efficient
producer.14
TabU 6-1 SOURCES OF GOLD PRODUCED IN THESOVIET UNION, 1913-28
year Kilogram of Gold Produced By: % Produced byU.S.S.R. Lena Concession Lena Concession
"9"3 — 11,728 —I9*i — 066* —i9**-3 11,179 2,588* —19*3-4 10,000 4-,734* —I934-S 25,258 6,7+9* —192S-6 15,149 8,364** 331926-7 23,15a 8,552"' 371928 27,965 7.953** 28
Sources: 1913-24: B. P. Torgashev, The Mineral Industry .-..' the Far East (Shanghai:Chah, 1930), p. 10a.
1925-28 : Amtorg, Economic Review of the Soviet Union, III, 34.
• Operated by Soyuszoloto.•• Operated by Lena Goldfields Co. This production is .1 excess of the 6,500 kg.
annual production required by the concession agreement.
"5?*?? 2.
11,"lterview between Lyman Brown, representing >-he concession, and F.
o »9°leman-*e United States Consul at Riga, Latvia, orinted in Report No.
2838, May 12, 1925. Coleman makes pointed comment on tt-e value of the conces-sion, and history was to bear him out almost exactly: 'While my opinion may be apassing one and gratuitous, I think that Mr. Brown is too optimistic and thatnothing will come out of the agreement in the shape of profit* . Asked what securityhe had that the party of the first part would fulfill the terms of their contract, Mr.
.Brown said that they 'could not afford to do otherwise; which, in view of the pastrecords, is adjudged very slim security.' (316-136-426.)
" Times (London), September 3, 1930, p. 13. The Soviet estimate is also 35 precent.(Amtorg, op. cit., Ill, 116.)
" The Lena Co. employed 8,000 workers and was producing 2.73 kgs of gold perworker per year. The Soviet national average was between 0.44 and 0.59 kgs ofgold per worker per year, (Amtorg, op. cit., Ill, 285.)
Gold Mining, Platinum, Asbestos, and Minor Mineral Concessions 97
Lena Goldfields fulfilled its agreement to produce more than 6,500 kilo-
grams of gold per year. Both Soviet and Western sources agree on this point.
Reference to table 6-1 indicates that, during the life of the concession, Lena
consistently exceeded the agreed gold output, and averaged more than one-
third of Soviet gold production between 1925 and 1928.
According to Soviet sources, Lena also fulfilled the other requirements of
the concession.1* A summary of the first three years of operations (1925-8)
stated that Lena had installed a 17-foot dredge in the Bodaibo section of the
Lena-Vitim fields 'before the time set in the agreement.' This in itself was a
massive undertaking, as a large, complex piece of equipment had to be moved
from the United States to the far interior of Siberia, installed, and put into
operation . Special roads and equipment were built, and the dredge was put into
operation in July 1928. A yearly average 8,000 kilograms of gold was produced
between 1925 and 1928, with a slight drop at the end of 1928 because of the
changeover from hand to machine methods. It was estimated that the dredge
alone, apart from re-equipment of the underground mines operated by Lena,
would double Soviet gold production almost immediately. 16
By March 1929, Lena had invested, according to Isvestia,* 7 over eighteen
million rubles in new equipment, and in addition had restored old plants to
operation. However, the Lena Goldfields honeymoon was not to last for long.
In April 1928, just as the dredge was being finally readied for production, an
article by I. Maisel in Ekonomicheskaya Zhizn entitled 'It must be ended' began
the harassment which was to culminate in the expulsion of Lena in 1930. Maisel
argued that Lena had turned exploitation over to starateli (private prospectors)
and to artels comprised of former hired laborers. That this was the arrange-
ment also used by the Aldenzoloto trust was not mentioned. The article
cataloged alleged complaints against the operation and specifically stated that
the company was 'manifesting a quite unjustified and inadmissible intolerance
and stubborness' in relation to the miners' economic provisions: i.e., social
insurance payments and allotments for cultural needs. The crux of the
argument was, however, the organization of artels, the company preferring a
" Amtorg, op. eit., IV (February 1919), 33 •
" The dredge was one of four placer dredges built for Russia by the Bucyrus Co.(United States) in 1916-7. Of these, two were delivered and one canceled. Thefourth was the Lena dredge, a massive piece of equipment, as high as a six-story
building. It was delivered to Lena in 1927 after being moved from South Milwaukeeto Baltimore on seventy-five flat cars, to Murmansk by steamer and to Irkutsk
by rail, then 200 miles on a mountain trail by wagon and sledge, and then to Kachucaby barge on the River Lena. At Kachuca it was reloaded on small boats for a 700-
mile trip up the River Vitim to Bodaibo, just 1 1 miles short of its final destination.
Delivery and assembly took 18 months. [Designed for Digging; The First 75 Years
of Bucyrus-Erie Company (Evanston; Northwestern University Press, 1955), p,
is6.]11 Isvestia, March 36, 1929,
98 Western Technology and Soviet Economic Development, 1917-1930
simple association of miners while the Miners' Union wanted an organization
similar to labor artels under which the artel also became a contractor. The time
was picked well—the start of the gold-mining season—and the union called
for a revision of company policy, irrespective of a concession agreement whichclearly gave the Lena company a clear option in this aspect of labor relations.
This article was followed eighteen months later by one in Izvestia of October
22, 1929, which made a derisive attack on the profits being made by Lena:
'The profits of the concessionaire are growing—what a victory.' As the Lenaconcession got into full operation, it was attacked as a 'weed in the socialist
system' which required attention. Two months later the GPU searched the
company offices and arrested several Lena employees.
Continual Soviet interference with production by labor strikes, managementfines, and similar harassment slowed output after 1928." The Soviets then
claimed that the reduced output was non-fulfillment of paragraph 39 of the
concession agreement, ergo the agreement 'has lost its validity owing to the
one-sided and unlawful action of the Lena Goldfields. . ..' le Liubimov was
thus enabled to make the statement that gold production was 'below agree-
ment,' 10 although previously published Soviet figures (table 6-1) had indicated
a production well in excess of the agreement.
In February 1930 it was reported that the Soviet government had given
notice of its intention to annul the Lena concession in the first week of April
1930. Lena denied the validity of this report on the basis that the Soviet
government had no authority under the concession agreement to give any
such notice or to annul the concession.
The labor disturbances had started in earnest in January, and on January 30the Soviet courts sentenced the Lena manager to eight months' forced labor
and a fine of $62,500 for alleged late payment of wages.
On February 12, 1930, Lena sent the Soviet government a telegram asking
for arbitration and nominated Sir Leslie Scott as its representative. There wasno direct reply to the telegram, but on February 28 the Soviets agreed to
arbitration via Izvestia, which published a long indictment of the LenaCompany alleging that:
(a) The company had insufficient capital to undertake the program.
(b) It had failed to reach its production and construction program in the
last year.
(c) It had failed to utilize the latest technical methods.*1
11 Titnti (London), September 3, 193c, p. 13.
" Documents Concerning the Competence of tkt Arbitration Court Set Up in Connectionwith the Question! Outstanding Between the Lena Goldfields Company Limited andthe U.S.SJt. (Moscow: GUvnyi kontsessionnyi komitet, 1030), p. 32.
w Liubimov, op. tit., p. 139.
" Ixvtstia, March 6, 1930.
Gold Mining, Platinum, Asbestos, and Minor Mineral Concessions 99
The article alleged failure to meet foreign obligations and breakdowns in
the dredge and the Urals copper smelter as evidence of the validity of these
charges.
Three weeks later, four Russian employees of the concession were placed on
trial on charges of espionage and sabotage, and on May g all four were jailed.
In the meantime, the Arbitration Court had been established in Berlin
with Professor Stutzer as Chairman. On May 10, Moscow recalled its delegate
to the Court, Stutzer decided to continue hearings and stated that the conces-
sion could be abrogated only by a decision of the Court. At the end of May,
the Soviet government instructed the Commissariat of Transportation to take
over the steamships and other transportation property of the Lena concession.
On August 7 the Special Court of Arbitration opened its hearing with the
Soviets absent. It was established without question that Lena had fulfilled the
terms of the agreement. Whereas the agreement called for an expenditure of
Jii million in seven years, Lena had actually spent $17.5 million in four and
a half years, Evidence of adequate financing was presented. On the other hand,
extensive evidence was presented that after 1929 the Soviets had started to use
physical pressure against Lena, first by cutting off supplies, and then by
ejecting the company from the Sissertsky limestone deposits by armed force.
(Limestone was essential as a flux in the Lena smelter operations.) An independ-
ent arbitrator valued the Lena property at more than 889 million.
The Soviets did not put in an appearance; the Court found for Lena, but
the concession passed into the pages of history. A booklet was published by
the U.S.S.R. in both German and English, as a rather superficial attempt to
explain what was clearly completely unjustifiable expropriation.82
In retrospect, there can be no other conclusion than that the Soviets
deliberately enticed Lena into the U.S.S.R. to get the massive dredge installed
and also as much else as they could along the way. It is, in the light of history,
a clear case of premeditated industrial theft on a massive scale.
Before Lena Goldfields entered the Siberian gold fields, some 75 percent of
all Russian gold output was being produced by hand methods, and there was
no mechanical equipment. Consequently, output per worker was both very
low and fluctuating: '. . , even the record of the most efficient producer,
the foreign concession at the Lena Goldfields, was unimpressive.* M With the
" Materialmen zur Frage der Zustaendigkeit des Schiedsgerichts in Sacken 'Lena Gold-fields'— Union d.S.S.R. (Moscow: Glavnyi kontsessionnyi komitet, 1930), publishedin English as Documents Concerning tlie Competence of the Arbitration Court Set Upin Connection with the Questions Outstanding Between the Lena Goldfields CompanyLimitedandthe U.S.S.R. Aisoset, for iheSovietside,S. A. Bernstein, The Financialand Economic Results of the Working of the Lena Goldfields Limited {London: Black-friars, n.d.). This title must be a classic among misnomers. The booklet containsnot a single statistic concerning 'results.'
'* Shimkin, op. cit., p. 168.
loo Western Technology and Soviet Economic Dei. tiopment, 1917-1930
introduction of the Lena dredge, however, the stage was set for a massive
increase in production at a much lower production cost, and the field of opera-
tions could be extended into the low-grade-ore-bearin^ areas. By 192S Herbert
Guedelta (Chairman of Lena) in his annual report tc shareholders reported
that the results of capital expenditures were beginning to show. There had
been an intense reorganization of production during the previous three years;
large orders for plant equipment had been placed (in addition to the dredge),
and these had been financed with the aid of the Deutsche Bank in Germany.24
In brief, by 1930 the technical reorganization was almost complete. In addition,
the Soviets decided to utilize American technology. Consequently, Lena, held
predominantly by British interests, could be expropriated without fear that
political repercussions would affect further technical acquisitions.
THE LESSER GOLD CONCESSIONS
Smaller gold-mining and exploration concessions were located in the Far
East, in the Amur River basin, Okhotsk, and Northwest Siberia.
Table 6-2 LESSER SOVIET GOLD MINING CONCESSIONSLEASED TO FOREIGN OPERATORS, 1921-8
ConcessionaireCountry
of OriginLocation Years Investment Work
Vint concession
Far Eastern Prospect-ing Co. Inc. (formerly
Smith concession)
Gold Mining, Platinum, Asbestos, and Minor Mineral Concessions 101
organized to operate the Amur River mines, the Soviets had agents in Harbin,
China, to recruit 3,000 coolies and were also utilizing United States gold
mining machinery and mining specialists.*6
The Vint gold mining concession, granted in December 1921 for 20 years,
covered 1,600 dessiatins along the River Smirtak, in the Amur Region of the
Far East, and gave Vint the right to exploit prerevolutionary mines at Ftoroi,
Blagovestchensky, Petrovsky, Zaharievsky, Novopoktovsky, Seregovi, Evdo-
kievsky, and Codachny, and the placer deposits in the Smirtak River valley
for two vcrsts upstream from the Codachny gold mine. As late as 1923 this
concession represented 'practically the only organized effort either in Russia
or Siberia to produce gold,' 27 Vint was required to install a dredge, with a
capacity of not less than 2 cubic feet, not later than June 1, 1922. Extra dredges
had to be installed before July 15, 1925 to excavate not less than 50 cubic
sazhens per day.48
In lieu of the deposit of 35,000 gold rubles required in the concession
agreement, Vint was allowed to purchase a dredge already on the Smirtak River.
Vint had both British and American partners and raised capital in the
United States, Britain, Belgium, and China at various times during the life of
the concession, which lasted at least until 1927.
The Vint concession is especially interesting from the viewpoint of the
heavy tax burden placed upon more successful concessionaires. According to
information given in an interview with the U.S. State Department, Vint was
subjected to the following taxes:
1
.
A 'dessiatin tax' of one gold ruble per year for each of the 1 ,600 dessiatins
in the concession.
2. A land tax of 0.75 ruble per dessiatin.
3. A workmen's insurance tax equal to 10 percent of the wages paid.
4. A workmen's association tax equal to 2 percent of wages paid.
5. An assessment of 10 gold kopecks per dessiatin for the 'gold miners'
association.'
6. A 6-percent tax on turnover in the general merchandise store which
Vint was required to operate as part of the concession.
7. A local tax not in excess of 30 percent of the total state tax (items 1
through 4 above).
8. The cost of providing a school for the miners* children.
** 'The Soviet mining officials are unable to work these mines without foreign miningexperts and without the labor of Chinese coolies who work more efficiently andwith less wages than do Russian laborers.' [U.S. Consulate in Harbin, China,
Report, July *3, 1918 (3l6-J36-*7S)0** U.S. Consulate in Riga, Report 1480, November ao, 1923.
** There is a copy of the Vint agreement in the U.S. State Dept. Decimal File, 316-
1 36—348, with other data scattered throughout 136.
102 Western Technology and Soviet Economic Development, 1917-1930
9. A 5-percent royalty on gross output to the government, which in anyevent reserved the right to fix the price of gold and required all produc-tion to be delivered to government laboratories.
Vint held that he was unable to make the proposition pay and that taxes
were continually raised—eventually to the point of eliminating profits. Apartfrom that, he argued that locally concluded agreements were not alwayshonored in Moscow, and that on taking a local agreement to Moscow for
ratification he would be 'chipped down' even further. Although the concessionmay have been profitable from Vint's viewpoint in 1923, continuing tax
pressure made it unprofitable from about 1924 until its demise some timeafter 1927.
C. Smith, a mining engineer and former employee of the Inter-Allied
Railway Commission, in Siberia, was the operator of a gold mining concession inthe River Karga area of the Amur Basin. The concession, granted inNovember1923, was for the exploration and production of gold. One year was allowedfor initial prospecting, during which all gold had to be turned over 'without
payment,* and a further twenty-three years was allowed to mine any pros-
pects discovered in the initial prospecting period. The agreement contained
the usual terms: customs-free import of machinery and equipment, a land
rental fee and 5-8 percent output tax, together with state and local taxes. At the
end of the concession period, all equipment and properties were to be turnedover to the Soviet government in good condition.
It is certain that Smith did some work. He brought in a mining engineer, three
American drilling specialists, and fifty Russian laborers. The concession wastransferred to a United States registered company, the Far Eastern ExplorationCompany.** Drills and supplies ordered through this company were shippedto the Drazhud gold fields. At this point the history of the concession becomesvague. It was reported thatmore than Si25,000 was spent in the first nine weeksof exploration, but that the expenditure was made in looking at oil-well boringsand that the imported drills were not used. It can reasonably be assumed that
the concession lasted only a short while—probably less than one year—andthat it made an insignificant contribution to Soviet gold fields developmentin the Far East."
" New York Times, October 30, 1923, p. 8, col. 2, reported that the Far EasternExploration Company, headed by Henry T. Hunt, had received concession pros-pecting rights to 3,500 square miles of placer fields in the Amur Basin: there wasno mention of C. Smith.
" U.S. State Dept. Decimal File, 3>6-i3i-:47. The Smith concession is moreinteresting in relation to the 'arm's length hypothesis' discussed in chap. 17. Smithwas suspected by the U.S. State Dept. of being in the pay of the Soviet Union,was a member of the Peasant International, and later, in 19*6, became Moscowrepresentative for the American-Russian Chamber of Commerce, which had suchpreattgou* members as Westinghouse, International General Electric, and Deere.
Gold Mining, Platinum, Asbestos, and Minor Mineral Concessions 103
In early 1925, a gold prospecting and mining concession was granted to the
Ayan Corporation, Ltd., of the United Kingdom. The company acquired the
right to prospect for, and mine, gold in the Okhotsk uyezd, Kamchatka. Theconcession had a nominal life of thirty-six years; during the first four years
the company was required to expend 600,000 rubles in prospecting work,
deposit 100,000 rubles as security, and purchase all buildings and existing
physical property at market value. Modern prospecting and mining tech-
niques were to be imported by the concessionaire, who was also required to
build roads and communications, with the right to run aerial communica-
tions if desired.
The entire gold output was to be delivered to government laboratories for
purchase by the Soviet government. A rental was paid on land explored, a
5-percent royalty on the total output of gold, and an overall 5-percent tax.
The company organized food stores and was required to abide by the labor
laws and to hand over all buildings and property intact at the end of the
thirty-six years.31
After two years the concession was cancelled at the request of the Ayan
Company, in the light of unpromising prospecting results.32
A protocol of the 1925 Treaty of Friendship and Recognition between Japan
and the U.S.S.R. made provision for gold concessions in Kamchatka and
Okhotsk. The Kamchatka concession was taken up by two Japanese firms,
Yotara Tanaka and Shova Kiuka Kabushiki Kaisia.
The D, A. Hammerschmidt concession to prospect and mine gold in the
Amur Basin was signed on November 12, 1926. The American concessionaires
were required to transfer not less than $375,000 capital to a joint-stock com-
pany, and the founder members were to be subject to the approval of the
Soviet government. The initial prospecting period was to expire on March31, 1928 and the mining period on March 21, 1948. During the initial period,
Hammerschmidt and his associates were required to undertake 2,000 meters
of drilling and do trenching on an exploratory basis. Any gold mined was to
be deposited with the Soviet government, and the concession was to be voided
if mining did not commence before March 31, 1928. A royalty of 3 percent was
to be paid to the U.S.S.R., in addition to an annual land rent, plus 4 percent
of the gold mined, in lieu of national and local taxes. The mine was to be
turned over to the U.S.S.R. at the end of the concession period.
The concession was subject to the Labor Code, and the lessee 'agreed to
admit ... for purposes of study, Soviet geologists, engineers and technical
personnel.' 31
*' Izvtstia, No. 103, May 8, 1925,»' U.S. State Dept. Decimal File, 316-136-667.»' Ekonomkheskaya Zhisn, No. 175, November 27, 1936,
104 Western Technology and Soviet Economic Development, igij-igjo
These smaller concessions did not have the same magnitude of capital
investment as Lena Goldfields, but they were required to introduce modernmining and exploration equipment and techniques.
Those gold mines that did not come within the sphere of concessionary
activity were equipped with modern equipment, and Western mining engineerswere hired to establish and plan future production. The Kockar gold mine, in
the Southern Urals, previously a French concession, was the first to be equip-ped in this manner, in 1928. According to Littlepage, who was in a position to
have accurate data, by the end of the 1920s each gold mine, outside theconcessions, had four or five United States mining engineers and employed'thousands of foreign workers.' 34
It is estimated, therefore, that in 1928 about 40 percent of Soviet gold wasbeing produced directly by foreign concessions utilizing modern dredges andore-crushing and sorting plants. This estimate is indirectly confirmed by otherdata from Soviet sources. It was reported in 1928, for example, that 56 percentof gold was being produced by 'individual prospectors and purchased fromthem by the large companies*—presumably Soyuszoloto and the other goldtrusts. The balance of 44 percent was being produced by 'organizations usinghired labor'—presumably Lena and the smaller concessions.35
DISCOVERY AND DEVELOPMENT OF THEALDEN GOLD FIELDS
In 1924 a rich gold field was discovered and exploited in Northwest Siberia
:
the Alden. There are two features worth noting about this discovery: first,
this was the initial gold discovery under Soviet rule and the only majordiscovery in the 1920s, and second, it was not opened up to foreign concessionsfor development. The question then logically arises: how is such a develop-ment, remote from Western influence, consistent with the hypothesis of this
study?
Under the 192a decree, private leasing and exploration had been restoredin gold and platinum mining. The Alden discovery was made in 1923 byKuzmin, a private digger working on his own account and not employed by a
State organization « The report of the discovery spread rapidly, and theresponse was a typical Western-style gold rush. Thousands of prospectorsflocked into the Alden area, under the inducements offered in newspaper
»«J. D. Littlepage and D. Bess, In Search of Soviet Gold (New York: Harcourt Brace* Co-. 1937). PP- 08, 87-8. Littlepage was chief production inspector for the SovietGold Trust at this time; he later became deputy chief engineer of the same trust.
The heavy reliance on individual prospectors or 'Russian concessionaires' is con-firmed by Littlepage and Bess, op. cit., p. isi.
Izvettia, No. i, January i, 1917
Gold Mining, Platinum, Asbestos, and Minor Mineral Concessions 105
publicity.37 The result was a decrease in the working force of the Far Eastern
province mines from 12,238 in 1923 to 8,222 in 1924, as workers moved to the
Northwest.38 The field was then closed to private claims, and in mid- 1925 the
12,000 or so workers who had moved to Alden were organized into artels.
A trust, Aldenzoloto, was then created and a few months later the Yakut
Autonomous Socialist Soviet Republic was closed to outsiders.39
In brief, this remarkably rich deposit was prospected and initially developed
by individual 'Russian concessionaires," as Littlepage calls them, rather than
foreign concessionaires. The state trust was formed three years after the
initial discovery and development.
The extraordinary inefficiency of the state trust (even the best-run) has
been described by Littlepage, who was in a position to observe. The Soviet
Gold Trust was run by Serebrovsky, the best of the trust directors in the
1920s. Serebrovsky hired Littlepage as his technical administrator, but the
difficulty of efficient administration is seen in the examples given by Littlepage.
The Alaska Juneau gold mine, one of the largest in the world, had five people
in the office and could provide figures promptly. Littlepage describes the
typical trust gold mine with 150 in the mine office, and a fraction of the
United States output. It could take weeks or months to get comparable
figures.40
PLATINUM EXPORTS
Before World War I, the Urals provided almost all the world's supply of
the platinum group metals. Production of platinum in 1901 was 14,000 poundsand in 1914 10,700 pounds. In general, the platinum producing areas escaped
the ravages of war and revolution, and demand was certainly stimulated
between 191 7 and 19 19 by vigorous pre-emptive buying on the part of the
Allies to prevent platinum from falling into German hands. The provisional
Omsk government required sale to government sources but little else of a
restrictive nature. The area was occupied by the Soviets in 1919 and within
two years production dropped to between 700 and 1,000 pounds per year.
The condition of the platinum industry appears to be no better than thatof the gold industry. All the events which caused the collapse of the goldindustry . . . refer as well to the platinum industry,41
By 1921, production had fallen to 360 pounds, concentrated in three areas
along the River Isse. Apparently some production was on an 'irregular' basis,
" Harbin Daily Neios, December 7, 1924." Ekonomicheskaya Z/ttzn, No. 355, December 9, 1924," Izvestia, No. 23, January 29, 1926."> Littlepage and Bess, op. cit., p. 216." Ekonomicheskaya Zhizn, No, 173, August 4, 1922.
106 Western Technology and Soviet Economic Development, 1917-1930
and platinum was exported to the West through Latvia insubstantial quantitiesuntil choked off by more effective Soviet border patrols in 1925.*2
From about 1923 to 1926, Rusplatina used the London chemical firm ofJohnson, Mathey and Company as a world distributing agent, although at rareintervals platinum was also shipped via the Compagnie de la Platme, inParis. This trade was on the basis of a yearly renewable contract. In 1926Johnson, Mathey and Company became a little high-handed and the Sovietsestablished Edelmetall Verwertungs Gesellschaft in Berlin, which apparentlyhad the effect of bringing the London firm back into line.
This was followed by an active campaign of price cutting to regain theprewar share of the market. In order to accomplish this, the industry had beenreorganized and equipped with imported modern electric shovels. This meantthat platinum could be mined profitably where the ore content was as low as1/30 pennyweight platinum content per ton, in contrast to the requirementfor 1/10-pennyweight per ton under earlier conditions. By 1926, productionwas restored to 5,800 pounds per year, all of which was exported. However,this was hardly a major contribution to foreign exchange earnings, as the priceof platinum had been forced down from $112-8120 in 1925 to J62 per ouncein 1927.
Two platinum-refining works had been started by the Russian governmentin 1914 under the pressure of changing wartime conditions. These plants werestarted again in the early 1920s, with the assistance of Professor L. Duparc(France), described as 'the greatest platinum expert in Europe.' 43
BAUXITE AND THE ALUMINUM COMPANY OF AMERICAA Type I concession agreement was signed in April 1926 between the
U.S.S.R. and the Aluminum Company of America (ALCOA) which gave thelatter the right to explore for bauxite, the raw material for aluminum, through-out Russia during a period of two years. Although no details were publishedconcerning this agreement, representatives ofALCOA were interviewed fromtime to time by U.S. State Department officers, and it appears that nineALCOA engineers prospected for bauxite in several locations—mainly southof Tikhvin.
J
The Tikhvin area blocked out by ALCOA contained four deposits of GradeI bauxite, estimated to contain 2.8 million tons of 'probable' ore, togetherwith additional tonnages of 'possible' ore. The ore had a high silica content,
"T^i51?™ f?'
'im«ular exports' are available, as Latvia produces no platinum
Sw! fi
M^5t"V,m C
|
Cp?r? f?r th,s penod are alt of 'iiWButa' Russian platinum.
Export figures for regular1
platinum ate not available, but these were approximately40,000 os. per year, compared to just under 10,000 oz. for 'irregular' exports.
*' Annuaire, op. cit., page XI.
Gold Mining, Platinum, Asbestos, and Minor Mineral Concessions 107
together with iron oxide (an impurity), and the project was abandoned at theend of 1927, as the engineers considered the deposits not of commercial valueand unworthy of further development."
The Soviets did not give up. Tikhvin was their best bauxite deposit, andthey were determined to build an aluminum industry. In 1929 the Germanfirm Vereinigte Aluminumwerke A-G., which had perfected a reductionprocess applicable to the Russian bauxite grades, reported that the Sovietshad been attempting ' ... for some time to secure the patent rights for
Russia or at least operating rights to this process, but the negotiations haveremained negative due to the failure of the Soviets to furnish certain guaran-tees.' 46
Nevertheless, by 1930 technical-assistance agreements had been made to
cover most aspects of aluminum manufacture. An agreement in 1930 withCompagnie de Produits Chimiques et Electrometallurgiques S.A. (France)covered the reduction of aluminum; and another contract, with Dr. IngStraube of Karlsruhe, covered the manufacture of aluminum hydroxide,synthetic cryolite, and aluminum electrodes. A third agreement, with theSociete du Duralumin S.A. (France), covered the manufacture of duralu-minum.« A fourth agreement with Frank E. Dickie, an independent Americanengineer, provided technical assistance to Aluminstroi, the ConstructionBureau for Aluminum Plants.17
MICA MINING AND THEINTERNATIONAL MICA COMPANY, INC.
The largest mica deposits in the U.S.S.R. were included in a Type I
concession agreement in 1924 with the Russian-American Mining andEngineering Corporation, a subsidiary of the International Mica Company,Inc., of the United States. The concessionaire agreed to produce 35 tons ofmica in the first year, increasing quantities gradually to 175 tons in the fifth
year. A 5-perccnt royalty was paid on all production, and export was allowedby the operator. Modern mining equipment was imported and installed by thecompany.
" yj^f^?1, I
?<dmi,
L ESfL 3^-136-363 and .230; 316-131-388 and 316-
Ak" ^5- ,.
an"1
>'!fs of Tikhvm ore are in Geologichcskii komitct, Codovoi
Obxor MiiuraTnykh Resursov SSSR sa 1925)6 (Leningrad: iga7), pp. 47-8." Vossische Zeitutig, November 1 8 ,1 929.
" ^f^I^V^ °'&.pp '25?
and?3?'
By ,93° Soviet aluminum production
Z113? ?™ baS 'S' ^he ,Problc™ .<>f development and the partially successful
transfer of Western technology will be covered in Vol. II.
«idAUnwin)
l0V
'"a
1 L" ^^ 5<"" <!
'Un">" Yearhook
<^3°
^'Lo^^- Allen and
108 Western Technology and Soviet Economic Development, xgiy-igjo
ASBESTOS PRODUCTION IN THE URALSThe Urals' asbestos deposits have been mined since the 1880s. The most
important group of mines was at Baskenovo, about 90 miles northeast of
Sverdlovsk; this group produced 96 percent of the 24,000 metric tons asbestos
produced in Russia in 1914. Just before the Revolution, mines at Alapaievsk
and Iltchirsk (in Irkutsk Province) were equipped and brought into production.
The Neviask and Ostanino deposits were known but not exploited. In 1912Russia exported 13,260 metric tons of asbestos, but exports ceased completely
during the Revolution.
The impact of the Revolution was significant. No maintenance was donefor several years, many of the mine buildings fell into disrepair, and the open-
cut workings became watered. The essential problem, however, between
1917 and 1920 was to organize production and transport the mined asbestos
to foreign markets.
Table 6-3 ASBESTOS PRODUCTION IN RUSSIA,1913 AND 1923
Mines 191J 1023
All grades, in metric tonsBaskenovo Group:Graemuchka River 1,300 NoneKorevo ii.soo"!Reftinsk 8,000 I 7,830Mukhanovstt 1,400
f
22'350
Okunevsk 150 JAlapaievsk N.A, 350Neviask 1,000 NoneOstanino 170 NoneIltchirsk (Irkutsk Province) N.A. None
Source: L. Berlinr&ut, 'Russian Asbestos Mining Reviving,' Engineering and MiningJournal-Press, CXXI, No. 4 (January 33, 1926), 164.
In 1920 only 1,300 tons of asbestos were produced (all from the Baskenovogroup of mines), and of this more than 75 percent was of inferior grades.
The Alapaievsky, Neviask, Ostanino, and Iltchirsk mines were closed
because of the lack of engineering and managerial skills.
In November 1921 a Type I concession was granted to the Allied Chemicaland Dye Corporation of the United States, whose subsidiary, the Allied
American Corporation, owned by the Hammers, had been operating under
license in the U.S.S.R. since 1918. The concession was to restore and operate
the Alapaievsky asbestos mines. The concessionaire repaired the buildings and
organized production, and by 1922 had more than 1,000 men employed, or
44 percent of all asbestos mine workers in the U.S.S.R., as shown in table 6-4.
Gold Mining, Platinum, Asbestos, and Minor Mineral Concessions 109
The agreement was made with the Ural Industrial Bureau for twenty years,
and Allied was required to start work within four months. A sliding scale of
required output was established, progressing from 1,200 tons in the first yearto 2,580 tons in the fifth and subsequent years. The government had the right
to purchase the concession after five years, and was to receive 10 percent ofall production. 48
Table 6-4 WORKERS EMPLOYED BY URALASBEST ANDHAMMER CONCESSION, 1921^
i io Western Technology and Soviet Economic Development, 1917-1930
The Baskenovo open-pit mines are by far the most important asbestosdeposits in Russia, In the early 1920s, production was primitive and withoutfacilities for upgrading." However, some asbestos was produced, despite theshortage of working capital, under the technical direction of Svedberg, whohad been the prewar director and was retained by the Soviets as consultingdirector. The limitations on output were the extremely primitive miningmethods and the absence of a mill to upgrade the mined chrysotile asbestosore.
The first major step was taken by Uralasbest in 1928, when it concluded aType III concession agreement with the Humboldt Company (Germany) tobuild a mill for upgrading the asbestos fiber and to reorganize mining methods.53
Ruykeyser's description of the circumstances surrounding the mill contractis quoted in full:
In 1928 I had fulfilled a contract with Amtoi-T in New York to lay out thepreliminary designs, along generalized lines, ibr the proposed asbestosmill. The plans were accompanied by an extensive report covering allphases of the processes involved. I had pohv.td out wherein my ideas,based on actual experience with the subject, vere at variance with thetechnical norms sent me as a basis for the drawing, ideas from whichI could not depart. But disregarding such advice, without heed ofconsequence, a contract had been given a large German firm to build theplant. The flowsheet, or schematic arrangement of machines and proces-ses, had been made by the engineers of the Trust under the direct super-vision and approval of the technical director. This flowsheet was alsocontributed to by the Germans, a paltry five-ton sample of the ore beingworked on laboratory scale in the preliminary testing. I was told thatnone of the Russian or German personnel had iwer seen a chrysotileasbestos mill in operation; and yet, they had attempted to build what wasto be one of the largest mills of its kind in the v-orld."
Not surprisingly, this mill failed to produce the desired results, althoughthere is some evidence that sabotage was at least partly responsible for its
failure. There are reports, for example, that wood chips, fatal to asbestosquality, were found along the production line. The mill was destroyed by fire
in May 1929, and, as a result of the subsequent investigation, three Russiancivil engineers were shot by the GPU and two sentenced to twenty years' hardlabor. Svedberg, the technical director, was arrested for negligence." TheSoviet response was to order another mill—a copy of the first ; this also failed
" Photographs in W. A. Ruykeyser. Working jar the Soviets (New York: Coviei-* nede, 193a) indicate quite clearly the hand methods in use before Ruykeyserreorganized production in 1929.
'» U.S. State Dept Dispatch No. 1518, Finland, Dec. 7, 1929. (Decimal File, 361.ooaai/i.j
** Ruykeyser, op. tit,, p. 60.
" U.S. State Dept. Dispatch No. 1528, Finland, December 7, 1929. (Decimal File.j6i.6od2i/i.)
Gold Mining, Platinum, Asbestos, and Minor Mineral Concessions 1 1
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1 1 2 Western Technology and Soviet Economic Development, 1917-1930
to perform. The consequence was the contract with Ruykeyser, and later with
the C. V. Smith Company, of Thetford, Canada, to design a mill suitable for
milling chrysotile asbestos fiber using Canadian experience. This was done,
and finally, on the third attempt, the Soviets acquired a mill which wouldperform adequately. As late as 1939, this third mill was producing 95 percent
of Russian asbestos fiber.
ASBESTOS ROOF SHINGLES MANUFACTUREAsbestos products were manufactured in prewar Russia at the Red Triangle
Works in Moscow. This works continued producing at about 25 percent of
capacity (see table 6-6) for a few years after the Revolution, and closed in
I933-M In 1926, Hammer (Allied American) started to build a factory in
Moscow, under a concessionary agreement, to manufacture asbestos roof
shingles utilizing raw material from the Alapaievsky asbestos deposits, whichhad been operated by Allied since 1921. The plant utilized imported modernequipment and was managed by Dr. G. L. Rosenbaum, formerly head of a
similar plant in Czechoslovakia,57
Table 6-6 MANUFACTURE OF ASBESTOS SHINGLES BYFOREIGN COMPANIES
Year Output(Millions of Shingles)
1921-z 2.i7I9M-3 2.7519*3-4 3-9*> 924-S 1 1.919^5-6 16.619*6-7 *i.61927-8 38.51928-9 51,31929-30 65.9
Source; G. Warren Nutter, The Growth of Industrial Production in the Soviet Union(Princeton, N.J.: Princeton University Press, 1962), p. 429.
Production of shingles accordingly doubled in a brief period; but this wasapparently insufficient, as a Type III technical-assistance agreement wassigned in 1928 with the Multibestos Company of the United States for the
construction and equipping of another asbestos products plant.68
** Ehonomkkukaya Zhim, No. 14, October 17, 1923." Ekonamichetkaya Zkisn, No. 124, June 1, 1926.** Another technical-assistance agreement between E. Waite and the Rubber Trust,
is listed for asbestos products in American-Russian Chamber of Commerce, op,at., p. 101. E. Waite however, probably represented Multibestos Company in theU.S.S.R., so that this may not have been a separate contract.
CHAPTER SEVEN
The Industrialization of Agriculture
The transfer of Western technology and labor skills in agriculture was
attempted along five channels. Each was part of a complex set of aims;
enlarging the scale of farming, substituting machinery for labor, converting
the farming sector into an industry, and removing the class enemy—the kulak.
The five transfer channels were: the large farming concessions, communesmanned by foreign sympathizers, model seed and breeding farms, the modern-
ization of the agricultural implement industry (particularly the tractor,
which had a place of honor equivalent to electrification in the industrial
sector), and the technical-assistance programs.
Bolshevik interest in large-scale agriculture began in 1924 and has been
viewed as an anti-kulak measure, but it was equally a method of industrializing
the farm sector. The kulak was the ideological enemy, but his ability to out-
produce the bedniak and the seredniak made him, at least up to 1928-9,
indispensable. There was a basic, naive assumption (which saturated the
thinking of the planners) that a large scale of operations would effect infinite
economies in agriculture. 1 The large farms of the American and Canadian
prairies attracted the attention of Gosplan and the Commissariat of Agricul-
ture, not because their yields were significantly greater than those in the
U.S.S.R., but because the sheer scale of operations and the massive substitu-
tion of capital for labor promised a simultaneous solution for two basic problems
in the Russian economy: the technical backwardness and hostility of the
peasant, the latter stemming from the policy ofprodrazverstka (forced requisi-
tion of grain) and the growing demand for agricultural products from cities
and planned industrial complexes, Perhaps a more obvious pressure wasRussia's complete failure to regain her prewar position as a major grain export-
er or even to reduce the grain imports necessary in 1928-9. The grave decline
1 The Gigant, largest of the State farms (500,000 acres), had higher costs than less
favored and smaller state farms, however.
114 Western Technology and Soviet Economic Development, igi^-igjo
in Soviet grain procurements in 1929 (down 23 percent from the previous year)
was an immediate incentive to action.1
In 1928 the People's Commissariat for Agriculture drafted a proposal for
the establishment of very large grain farms, and thirty experts were sent to the
United States, Canada, and Australia to study large-scale foreign agriculture. 3
Zemotrust (the grain trust), which had been organized to develop large-scale
farms, sent two further groups.* The Zemotrust program for 1928-9 providedfor establishment of fifteen large grain farms with a total area of 150,000hectares in the Northern Caucasus and Volga regions, to be cultivated by 635tractors.*
THE KRUPP AGRICULTURAL CONCESSIONS
The first attempt to introduce large-scale farming was made with the aid of
Krupp in 1924, after an announcement by the Commissariat of Agriculture
that it considered agricultural concessions necessary to the development oflivestock breeding, sugar beets, and silk worms. Processing and equipmententerprises were thought to be in particular need of foreign help.* However,
the Krupp agreement, after two major changes, ended in failure. The newZemotrust farms were consequently modeled on American and Canadianpractice.'
The Krupp agricultural concessions were an ambitious attempt on the
part of the Soviets to introduce modern agricultural large-scale methods into
the U.S.S.R., but for Krupp the objective was to develop a market for Germanagricultural implements and equipment. The concession was also designed
to revive Russian agriculture, eliminate the possibility of famine, and turn
the U.S.S.R. once again into a grain-exporting country. Krupp'sche Land-concession Manytsch G.m.B.H, was partly financed by a United Kingdomcompany, Russian Land Concession Manytsch, Ltd., registered in London.The function of the latter was to finance the German company to the extent
of 75 percent of the funds required for exploitation of the concession. TheUnited Kingdom company had a basic capital of £40,000, of which £30,000
* Ekonomicheskaya Zhizn, No. 187, August 16, 1929. See map of crop conditionson p. a.
' Irvatia, No. 114, May 18, 1938.' Ixvtttia, No. o», April »i, 1919.1 Pravda (Moscow), No. 168, July 21, 1928.• Ekonomickakaya Zhixn, No. 331, November 11, 1924,T M. Farbman comment*, "The big American and Canadian farms served as a model
for the new experiment and American agronomical engineers and experts wereengaged to start it, while the great virgin plains in the southeast of Russia, where themeteorological and aoil conditions resembled those of the wheat belt in America,were chosen as the scene of operations.' [Piatiletka; Runic?t Five Year Plan(New York: New Republic, 1931)1 p. 130.]
Industrialisation of Agriculture 11
5
was subscribed by the English group and £10,000 by Krupp. There was anobligation to raise a further £80,000 if required.
A model farm was established in the Don district of the Ukraine, equippedwith the most modern equipment and operated according to the latest methods.The final agreement, signed on April 3, 1922, covered an area of 162,000acres. In a further agreement later in the same year, this area was reduced to
67,500 acres in the Saal section of the Don district. The concession companywas obligated to place 3,780 acres under cultivation annually until a total of
63,450 acres was under cultivation at the end of the sixth year.
The Soviet government had an option to buy the whole output at worldmarket prices. At the end of the twelve years the Soviets might purchase theentire concession settlement, and either party would have the absolute rightto cancel the agreement in any sixth year. The period of the concession wasset at thirty-six years, at the end of which time the concession, with all its
equipment, would revert to the U.S.S.R. in good condition; the governmentwould reimburse Krupp for all improvements that had not been amortized.A special tax was imposed, equal to 17.5 percent of the total annual crop
yields, calculated at world market prices on the basis of Rotterdam GrainExchange quotations; this was in addition to the usual taxes. Krupp wasauthorized to employ foreign labor to 50 percent of the total labor force andforeign administrative workers to 75 percent. There was a board of arbitration
;
books and administrative procedures by the company were under the super-vision of a government inspection board. Workshops were established to .
repair, assemble, and improve agricultural machinery.8
A new concession agreement for farming in the North Caucasus area wassigned by Krupp with the Concessions Committee in 1927. The purpose waschanged from grain-growing to sheep-raising. Apparently substantial quanti-ties of the land originally granted in 1923 could grow grain only at a consider-able loss.9 Liquidation was first considered but then replaced by the newagreement. Under the new agreement, 12,000 acres were to be used for grainand the balance of 66,000 acres for sheep-raising. Two thousand sheep wereto be imported immediately, and 36,000 to be grazed within eight years. 10
Ten percent of gross receipts were paid to the U.S.S.R., which also had theright to buy the wool at world prices. The wages paid by the concessionairewere 30-40 percent higher than average Russian wages.11
' U-f-
Consulate in Konigsberg (Germany) Report No. ano, February 17, 1923,and Ekonomichakaya Zhizn, No. 13, January 19, 1923.'
9 3 '
• U.S. Embassy in Berlin, Report 1561, August 9, 19*7. (316-133-626.)»• Amtorg, op, cit., II, No. iS (September 15. 1927), 2.11 U.S. Embassy in Berlin. Report 2561, August 9, 1927. (31 6-! 3 3-626.)
If
•!
;
1 16 Western Technology and Soviet Economic Development, 1917-IQ3Q
%;|j A significant change was that the Soviets now agreed to participate in losses
(previously they had only participated in profits) and in the burden of financing
:i
and management on an equal basis,A mixed enterprise (Type II), the German-Russian Krupp Manushka Company was formed. Krupp's share of the capital
was 3 million rubles and the Soviets' 1.5 million rubles. The capital invested
by the Krupp concern was 'guaranteed,' and in the event that the undertaking
was not successful, it was repayable in 1937."
The soil was too salt, and tractors were more expensive to use than animals.
j
Buildings were built and experiments conducted, but when things went wrong
;| the bureaucratic process was slow and corrections could not readily be made.
I;Grain raising failed, so cattle raising was substituted, and, when this failed,
sheep raising—but too long a period elapsed between the substitutions.13
i;
\OTHER 'PURE' FARMING CONCESSIONS
j|An agreement between the U.S.S.R., the Volga-Deutsch Bank in the Volga
H:
region, and the Berlin firm Deutsch-Russische Agrar A-G (Druag) in late
1923 covered an agricultural concession on 67,000 acres of land in the Volga
region. The land was to be used for any purpose seen fit by the German conces-
sionaires. The Soviet government had an option on any products, although
any portion not so taken might be exported. A tax equal to 14.5 percent of the
total output was paid during the first two years of the life of the concession,
but increased to 17.5 percent during the next two years and to 19.5 percent
during the remaining years. Rent was equal to 10 percent of gross revenueand additional taxes equalled a further 10 percent.14
An extensive agricultural concession was also granted to the German VolgaBank, a Soviet joint-stock company, despite its name. This concession covered
370,000 acres in the German Volga and in the cantons of Federov, Krasno-
kutsk, and Palassov near the German Autonomous Commune. The concession
was then broken up and sublet to German sub-concessionaires in areas of
about 50,000 acres each. One such sub-concession was made to the German-Russian Agrarian Association. The company was required to cultivate the land
according to an approved plan: 10 percent in the first .year, 30 percent in the
second, 80 percent in the third, and 100 percent in the fourth. The concession
was set up to last for thirty-six years. The company paid to the bank a percent-
age of total production: 14.5 percent in the first year, 17.5 percent in the next
two years, and 19.5 percent thereafter—an arrangement somewhat moreliberal than in the Krupp concession. All state and local taxes had to be paid,
" U.S. Embassy in Berlin, Report 3923, September 18, 1928. (316-133-823.)u Berliner Tagebiatt, October 6, 1928.u U.S. Embassy in Berlin, Report No. *iio, November 19, 19*3. (316-131-140.)
Industrialization of Agriculture 117
and upkeep of the roads in the area was a concession responsibility. The bank
had the right to buy out the concession after twenty-five years. 15
An Italian-Russian concession for agricultural and mineral development in
the Kuban district was ratified in September 1922. One of the signatories,
Commendatore Ferdianando Bussetti, discussed the matter with the U.S.
Embassy in Rome shortly after signing the agreement. He indicated that the
operation of the 100,000-hectare concession would be under the supervision
of the Italian Agricultural Confederation, and that the objective was to grow
wheat for export to Italy. Under the contract, 15 percent of production was
to be paid to the Soviet government, a further 35 percent was to be sold locally,
and the balance was to be exported. It was suggested that 30,000 Italians
were to be transported to work the concession, and that they were to be free
from Soviet law and under Italian jurisdiction.'
An agricultural concession was granted to Harold M. Ware of the United
States in 1934. Ware formed the Prikumskaya Russo-American Association
and established farms on several thousand acres near Piatigorsk, in the North
Caucasus, His main objectives were to train Russian agriculturists in American
methods and organize model agricultural enterprises in the U.S.S.R. 17 Ware
brought a number of tractors and fifteen American specialists with him.18
Another concession agreement signed in 1923 transferred 15,000 dessiatins
to the Nansen Mission for the organization of model and demonstration farms.
The objective of the concession was to produce high-quality seeds and high-
grade animals, together with the organization of model seed-cleaning stations
and cooperative butter and cheese factories." A much larger seed-growing
concession, however, was Deutsche-Russische Saatbau A-G (Drusag).
Pravda (Moscow), No. 344, October 27, 1923.
U.S. Embassy in Rome, Report No. 456, October z, 19*2 (31 6-1 30-1 M*)- This is
a little far-fetched. There is no evidence that such a large number of Italians ever
went to work in the U.S.S.R.
U.S. State Dept. Decimal File, 316-136-1241.
Pravda (Moscow), No. 198, September z, 1924. Previously Ware had organized
the export of tractors to the U.S.S.R. through the Society of Friends of Russia.
The Ford Delegation of 1926 met Ware on several occasions and made unfavorable
comments on his personal operations and ethics. For example, 'He intimated that
provided we could arrange to give him a complete repair outfit (practically every-
thing on his farm had been a gift) much good would result on both sides. . ..'
(Presumably Ware was going to use his 'influence' with the Soviets on behalf of
Ford.) Later, with reference to some tractors which Sherwood Eddy had prevailed
upon the Ford Motor Co. to 6've to Ware, he commented to the Delegation that
the tractors did good work, 'but that the Company failed to send along the tractors
equipped with fenders, pulleys and assorted spares. We thought this a somewhatcurious statement from one who had received the tractors as a gift.' [Report of the
Ford Delegation to Russia and the U.S.S.R. April-August ioi6 (Detroit; 1926),
Ford Motor Company Archives Accession No. 49, p. 145-6.]
Izviitia, No. 166, July 26, 1923.
1 1 8 Western Technology and Soviet Economic Development, 191J-1930
GERMAN-RUSSIAN SEED CULTIVATION COMPANY
»
Drusag was founded in 1923 by Stinnes, the City of KSnigsberg, and a groupof German agricultural implement firms including Sack, Kemna, and Lanz,
together with the Soviet Commissariat of Agriculture. The concession wasgranted two properties: one in the Kuban area, suitable for seed growing, andthe other near Rostov, used as a cattle-breeding station. Substantial investments
were made in buildings and machinery, and within two years a greater area
was under cultivation than that called for under the agreement.
In 1925 a new agreement replaced the old contract. The main alteration wasthat the rental fee, based on gross profits, was decreased. Further relaxations
were granted in order to allow the concession to export from the Soviet
Union so as to purchase foreign machinery and to pay interest on loans raised
in Germany. The concession apparently operated well for a year after the
reorganization, and in 1926-^7 a profit of 450,000 rubles was reported. Thendifficulties developed, so that further German and Russian investment wasrequired. By 1927 a debt of more than 300,000 rubles was owed to Gostorg,
in addition to the unamortized part of the original German loan. A further
600,000 rubles was borrowed : 450,000 from the German government and the
balance ffom the City of KBnigsberg and German implement-manufacturing
companion. Of this sum, 150,000 rubles was used to repay the balance of the
German (lebt, 300,000 rubles was used to settle various Russian claims, andthe balance was used as working capital to carry the enterprise over until the
1927 harvest. However, in 1927 the German obligation had grown to someone million marks, and the Soviets began to move the enterprise towardcompulsqry liquidation. Further negotiation kept the enterprise alive until
1932.
The existence of the Drusag concession from 1923 to 1932 enables us to
make a brief comparison between 'tractorization' undertaken in the late 1920sand the experience of the concession—an island of private enterprise in a sea
of collectivization.
The mass introduction of the tractor, the high cost of depreciation, the cost
of fuel, the almost total lack of repair facilities, and the rough treatment themachine received in the hands of the peasant made it an extremely wasteful
method of farming. The Drusag concession, farming land of good quality in
a large plot of 27,000 acres, found animal power was often more economical
than mechanical power. Animals, especially oxen, were cheap : a unit consisting
of eight yoke oxen, a four furrow plow, and two men did the job as efficiently
as, and at less cost than, a tractor. The tractor only came into its own whenspeed was a factor.
** The information in this section is based on the German Foreign Ministry Archives.
Industrialization of Agriculture no.
The Russian however is inclined to think that, because the tractor turns
over the soil at a prodigious rate and with lots of cheerful noise and bustle
it is doing it more economically and efficiently than any other method.81
The contribution of Drusag was not, therefore, to a more efficient allocation
of agricultural resources. For a period of ten years the enterprise contributed
seed and pedigreed cattle to the state and collective farms, and although
Gostorg made sizable investments from time to time, these were repaid,
while the innovations developed by the concessions were contributed free
of charge.
TECHNICAL ASSISTANCE IN AGRICULTURE
An early form of technical assistance was given by the International Agrarian
Institute, established in 1923 by the International Peasant Soviet." The
institute consisted of five departments, for the study of peasant agriculture,
agrarian legislation, agricultural practices and methods of work, the attitude
of local Communist parties to this work, and the contribution made by peasant
economies in the world toward the achievement of a higher standard of living.
The institute established a library and published a monthly, The Agrarian
Question.
The main objective of the institute was the world-wide collection of informa-
tion concerning the peasant and his relation to agricultural technique and
economics.23 In 1924 the institute established an agricultural bureau in New
York to study the theory and practice of agriculture in the United States,
Canada, and the Latin American countries." In the same year an American
citizen, Coleman, founded an agricultural school in the U.S.S.R. with an
American staff,25
The acquisition of agricultural technology increased as delegations went
from and visited the U.S.S.R. A Soviet Agricultural Commission of twelve
experts, headed by P. B. Asaultschenko, visited Denmark in June 1926 to
study Danish agricultural methods. The commission purchased some animals
for breeding purposes, although fewer than had been expected in Danish
trade circles." A Swedish model farm was established and stocked with
n L. E. Hubbard, Economics of Soviet Agriculture (London: Macmillan, 10.39).
pp. 260-1. Hubbard points out that the consumption of fuel alone by a tractor
would in 1935 be 63 litres, or the equivalent of 630 kilos of grain—very nearly
the whole yield.
" Charles H. Smith, of the American-Russian Chamber of Commerce, formerly with
the U.S. State Dept., was also a member of the International Peasant Soviet.
" Izvestia, No. 3, January 4, 1924.
** Pravda (Moscow), No. 116, May 34, 1924.
u Pravda (Moscow), No. 198, September z, 1914.
" U.S. Legation in Copenhagen, Report 216. July 25, 1927. (316-133-6")
120 Western Technology and Soviet Economic Development, IQ17-1930
Swedish pedigreed animals. Nineteen Ardenne horses were delivered person-ally by the Director of Sweden's General Agricultural Service, who commentedon the model farm being established:
The Swedish model farm will be of a very great service for the demonstra-tion of Swedish products and the use of Swedish agricultural machineryas well as for instruction in Swedish agricultural methods.*7
A group of American specialists was induced to go to the U.S.S.R. One ofthem, Professor A. A. Johnson, was 'unduly enthusiastic' and voiced his
'unstinted praise' of Soviet development to the U.S. Consul at Berlin in
September 1928 after a three-month visit to the U.S.S.R., where he hadreceived an offer to act as agricultural adviser.*»
This search for specialists extended throughout the range of agriculture.
The grain elevators at Vladivostok and at Harbin, first operated by the
Chinese Eastern Railway, were later operated on a concession basis whenthe area came under the control of the Soviet authorities. A group of Russianbusinessmen in the Far Eastjoined with the railway administration and formeda joint-stock company to operate existing elevators and construct new ones.Such a move suggests the inability of the Soviet authorities to either operateor construct such units. As the elevators were handling nearly 100 millionpoods of grain a year, this was no small operation." Attempts to make a similar
agreement with a group of Italian grain importers for operation of Black Seaelevators was not successful; after extensive negotiations, the Italian grouprefused to participate without a Soviet guarantee of investment protection.30
Thomas Campbell,'1 according to Izvutia 'the biggest American farmer andone of the most prominent experts on the organization of grain production,'was invited to the U.S.S.R. by Zernotrust in 1929. The organization of
Campbell's Montana farm had been noted by Soviet experts and the processes'reproduced on a film 2,000 feet long which he has brought to the U.S.S.R.with him.' Campbell farmed 95,000 acres in Montana with 109 tractors andonly 200 workers. The object of his visit was to advise in development of tenmillion acres for wheat growing. The scheme envisaged expenditure of$100 million on agricultural machinery and another $50 million on trucksand road-making equipment. Campbell was reported to have been interviewed
»' U.S. State Dept. Decimal File, 316-133-631." U.S. Embassy in Berlin, Report No. 3924, September ,5, 1928. (316-134-455.)" A translation of the extensive agreement is in U.S. &**.-e Dept. Decimal File
316-134-860 to 891.'
» Several detailed reports on the negotiations are in U.S. State Dept. Decimal File.316-134-783 and 3"6-i34-79i.
» Thomas D. Campbell, Stasia: Market or Menace! {New York: Longmans Green.193*). Campbell s book is of the "I'm not a Communist but. .
,' genre and con-tains nothing specific concerning his work in the U.S.S.R.
Industrialization of Agriculture 121
and approved by both President Cootidge and Mr. Herbert Hoover before his
1929 visit.*2
While these ingredients for agricultural improvements became part of
Soviet agriculture,. the kolkhoz yield was less at the end of the decade than
the yield on private estates had been during the first ten years of the century,
although it represented a marginal imp rovement over the yield ofprewar peasant
farms.33 The uneconomic replacement of the horse by the tractor and the
persecution ofthe more effective peasants were disastrous to Soviet agriculture,
and incipient transfer of advanced Western agricultural techniques was
drowned by an intemperate ideology.
COTTON IRRIGATION
In July 1923 it was reported by the American consul in Riga that a group
of German financiers, including Krupp and Stinnes, had formed an organiza-
tion with the objective of reviving and enlarging the cotton industry of Turkes-
tan. The Turkestan cotton crop had received numerous setbacks from drought,
hot winds and marauding bands of basmachi who had succeeded in extensively
damaging the Fergana irrigation system, essentially devoted to cotton. The
population had fled to the towns as a result of the disturbances, so that the
cotton fields remained uncultivated. Production had consequently declined
heavily. In Bokhara, 1921 production of cotton fiber was less than 100,000
poods compared with 2.5 million before 1917. Between 1909 and 1914, the
total Russian production of cotton had averaged 13 million poods per year;
this declined to less than 2 million by 1922. 31
In 191 1 a mixed group of American and Russian engineers had visited the
Karakouma Steppe in Transcaucasia to determine its suitability for growing
cotton. The expedition, financed by John Hays Hammond, confirmed the
prevailing opinion in Moscow that the steppes were not suitable for irrigation
or cotton growing. 15 The 191 1 expedition was led by Arthur P. Davis, a
well-known American irrigation engineer. In 1929 the Soviets invited Davis
to undertake complete supervision of the operation and extension of the irriga-
tion system of central Asia, Sredazvodkhoz.36
M Bank for Russian Trade Review, I, No. 2 (February iQ2<j), p. t6. This claim wasmarked with a marginal question mark in Decimal File 316— 133— 1 167.
M L. E. Hubbard, op. tit., Chap. XXII, 'Effects of Mechanization on Production.'
" U.S. Consulate in Riga, Report No. 1337, October 6, 1923. (316-130-361.)" U.S. State Dept. Decimal File, 316-134-410/429.'• Ekonomicheskaya Zhizn, No. 133, June 13, 1929. By extraordinary good fortune,
extensive documentation exists for the work of one of the consulting engineers to
Sredazvodkhoz. This collection, now at the Hoover Institution, Stanford University,forms the basis of a chapter in Vol. U,
122 Western Technology and Soviet Economic DevelojLunt, 1917-IQ30
One unusual—and successful—experiment was tile establishment of aRussian experimental station for cotton growing in Persid. This was establishedin 1926 in Mazanderan Province, the country's largest cotton-growing district.The station consisted at zzz acres with a large Soviet and Persian staff. Experi-mental work was done with all varieties of cottonseed, including the Americantypes Weber and Acala, which did well, and Pima, which did less well. Byimproving seed quality and malting cash advances to the planters in the sur-rounding areas, the Soviets came to dominate the area. The cotton was export-ed to Russia. Records of the experiment were transferred to the cotton-growingareas of Turkestan.*7
Later in the decade the Chief Cotton Committee sent a delegation to theUnited States to study latest American achievements in cotton growing andcotton ginning; the ten specialists remained in the United States about sixmonths. Particular attention was given to organization and mechanizationproblems. An agreement was also negotiated with a 'large cotton growing firm'for the establishment of a seed farm in the U.S.S.R. and for the mechanizationof Soviet cotton gins. The Committee argued that the contract would'permit the Commission to successfully bring the experience of Americancotton cultivation to the Soviet Union.'*8
MERINO WOOLS AND AN AUSTRALIAN EMBARGOA decline in the breeding of sheep had become catastrophic by 1923
Said the President of the Wool Syndicate, 'The breeding of Merino sheepmust be considered as completely ruined,' » As a result of the Revolutiononly 98,000-110,000 head of Merinos were left, compared to the more thantwo million head in 1912. Commercial sheep farming had almost ceased, assheep farmers had left Russia and their flocks had dispersed. In 1923, only
Table 7-1 PRODUCTION AND IMPORTS OP MERINO WOOLIN U.S.S.R., 1923-6
y«" CUpped in U.S.S.R. Impprtt
,Qa3-4 *o,ooo poods 480,000 poodsj°*+-5 38,ooo poods 350,000 poods,0IS-° 3°f0O0 poods NOIM.
Commi'tt«H'Sj'"0f?'Uish-Rullian Trade (London: Anglo-Russian Parliamentary
" U.S. Consulate in Teheran. Report, August 6, 1936. (3i6-i 3 s-»7s.)" Ekonomicheikaya Zhixn, No. 171, July 28, 1029," Ekanemichttkaya Zhixn, December 9 and ta, 1921.
Industrialization of Agriculture 123
20,000 poods of Merino wool was clipped, and less than half of all available
supplies was collected. There was a parallel decline in the wool manufacturing
industry.40
The solution came in two stages. Large quantities of Merino wool were
imported in 1923-5, followed by heavy imports of Merino and other stud
sheep for breeding. The latter created sufficient concern in Australia to cause
the imposition of a ban on the export of Merinos, still effective in 1962.
Between 1919 and 1927, Soviet purchases of Merinos for breeding were not
too great: about 2,000 head during the whole period. In 1928-9 the Soviets
stepped up buying far beyond normal and on one order purchased 30,000
stud Merinos. The subsequent outcry led to the embargo on stud Merinos
on November 28, 1929.
"
Supplementing the import of sheep, a group of Australian sheep breeders
with capital and a flock of 1 ,500 Merinos settled in the southeast portion of
the R.S.F.S.R., under an agreement with the People's Commissariat of
Agriculture."
Large purchases of high-grade pedigreed sheep were also made in the
United States to improve and build up Russian stocks. In 1924, 2,766 sheep
were purchased; in 1925, 1,621; in 1926, 2,628; and in 1927, 8,414." They
were shipped in groups of 1,000 to 3,000. For example, in 1927 four Russian
peasants arrived in the United States to escort 2,700 pedigreed animals pur-
chased in Utah, Montana, Oregon, and Ohio. This group included 1,550
prize stock Rambouillets, 1,000 prize Hampshires, and 150 Sliropshires,
purchased for a total of $i6o,ooo.41
REPLENISHMENT OF LIVESTOCK HERDS
The 1922 famine left the Soviet Union, particularly the southeast, with a
much-depleted livestock population; most of the animals had been killed and
marketed. The restocking project was offered for concession. In the Volga
A.S.S.R., it was indicated that there were forty-five large cattle ranches,
each of which could be put in order for £50 sterling, although livestock
and supplementary equipment would cost a total of more than £1 million.
It was suggested that the enterprise would be profitable; but there were no
takers.45
,0 U.S. Consulate in Helsingfors, Kuport No. R-2100, February 28, 1923.41 Commonwealth of Australia, Parliamentary Debates, '12th Parliament, 1st Session,'
P- 3S8-" Izvestia, No. 35, February 12, 1924." Amtorg, op. cit., II, No. 24 (1927).** Amtorg, op. cit., II, No. iq (1927).15 Russian Information and Review, 1, No, 30 (July 15, 19**), 462.
1 24 Western Technology and Soviet Economic Development, zgiy-i93o
Breeding herds, as well as herds for sale, had been reduced to minuteproportions. In July 1921, just after the establishment of a commission toreorganize and improve the livestock-breeding industry, it was found that,although breeding establishments occupied more than 35,000 acres theycontained very few breeding stock. Only 1,000 pedigreed horses, 114 bulls,1,700 cows, and a few pigs, sheep, and goats remained in the breeding farms.Some improvement was made the following year bv purchasing small herdsfrom peasant farmers, but a decline of this magnitude required replenishmentfrom outside.**
The failure of tractor production, a 175,000-head .shortage of horses, thelag in agriculture, and possibly a military demand produced an unusualtransaction in halter-broken wild horses in 1927-8. Britain had broken withthe U.S.S.R. over the Arcos affair and Canada had immediately followed suit,so that officially there were no diplomatic relations between Canada and theU.S.S.R. However, the Canadian Department of Agricu.ture made four ship-ments, totaling 8,000 horses, from the western Canadian ranges to Leningradunder official auspices. Canadian officials rounded up the horses and made thepurchases, and two Canadian officers escorted them to Leningrad Furtherthe price was only $30 per head! The horses were taken to a military campoutside Leningrad, inspected by General Budenny and cavalry officers, andthen shipped down to the Ukraine.*7
LIVESTOCK AND DAIRY INDUSTRY CONCESSIONS-UNION COLD STORAGE, LTD.
The Union Cold Storage Company, of the United Kingdom, had severalconcessionary arrangements with the U.S.S.R. The first was signed in May1923 with the North Western Trade Department. The Trade Departmentassembled animal products in the R.S.F.S.R., with the technical and financialassistance of Union Cold Storage, who then exported and sold them abroadguaranteeing a minimum profit of 10 percent. This profit was then split: 67percent to the Department and 33 percent to Union Cold Storage."
G. H. Truss and Company, also of the United Kingdom, had a similaragreement with Khelboprodukt, concerning bacon exports, and providedequipment and technical assistance to build two bacon factories to producefor export. These were supplied on a credit basis. 49
'* Ibid., pp. 461-1.
" Ekonotmchakaya Zhizn, No. 193, May 27, 1924." Ekottomkkeskaya Zhizn, No. toz, May n, 1923.
^JZ°'r?Z10V*ky
',Ek*P
J'Jt' l
mport' *""•*"»" »J"« S.S.S.R. (Moscow: Dvigatel,
1926} Troyanovsky adds the comment that ' ... the Soviet purchasing-eiportorganization* have conducted their egga-exporting businesa mainly with the use ofloreigtt capital, r. 145,
Industrialization of Agriculture 125
Khleboprodukt concluded two further concession agreements in 1924 with
Union Cold Storage. The first was a concession for the export of woodcocks,
hazen-cocks, and partridges. Combined with this was a technical-assistance
agreement in poultry-farming development with a view to the subsequent
export of poultry. Union Cold Storage advanced credit, and the initial
agreement lasted until September 15, 1927. The second concession agreement
covered pig breeding. In 1922 there were only twenty pig-breeding farms left
in the Soviet Union, with a total of 843 pedigree animals, compared to a
total pig population of over zi million animals in 1916.50 sl Union Cold
Storage agreed to facilitate the export of pork to England through company
distribution channels on credit, and also to provide technical assistance in
Soviet pork production until September 15, 1929-
The Gostorg butter-export office in Leningrad also concluded an agreement
with Union Cold Storage, in August 1924 for export of butter to the United
Kingdom, the latter granting financial and machinery credits to facilitate the
contract.62
The 'Arcos break' interrupted Union Cold Storage concessions, but,
upon resumption of trade relations in 1928, they were the first United Kingdom
concessions to be renewed. Under the 1928 agreement, the Union Company
agreed to advance a credit of $2.5 million in exchange for the right to handle
all Soviet imports and dairy produce for United Kingdom market. The credits,
utilized for the purchase of machinery in the United Kingdom for the Soviet
dairy industry, were spread over three years and were granted in addition
to a credit of 80 percent of the value of dairy goods shipped. The dairy produce
was sold by Union Cold Storage on a commission basis and credit was made
available upon receipt of the produce in London. 63
Butter production and export in 1924 were also facilitated by a concession
agreement forming the Danish-Siberian Company (Sibiko), under which a
Danish company obtained for five years the right to produce and export butter
from Siberia. First-year production was set at a minimum of 200,000 poods,
with 300,000 poods as the minimum annual quantity thereafter. This con-
H Pravda (Moscow), No. 182, August 13, 1924.* l Henry Wallace noted that the Siberian pigs were Yorkshires descended from 800
imported from the United Kingdom in the early 1920s. [Soviet Asia Mission
(New York: Regnal & Hitchcock, 1946), p. 222.]
" Ixvestia (Moscow), No. 189, August 21, 1924, Union Cold Storage was handlingalmost all Russian exports of butter and eggs in the middle of the decade (including
exports to Latvia, reexported to the United Kingdom) except for a small quantity
handled by Truss, another Type II United Kingdom concession, and IVA, a
German concession. [L. Segal and A. A. Santalov, Soviet Union Yearbook, 1925,(London: Allen and Unwin, 1925), p. 243.]
M New York Times, March 16, 1928, p. 5. col. 3. Sir Edmund Vestey, who controlledUnion Cold Storage, was quoted: 'We have been doing business with Soviet Russiafor some time, and have found it quite satisfactory.'
126 Western Technology and Soviet Economic Developmnt, igi7-I93o
stituted a considerable portion of Russian butter production at the time TheD*ush company received half the profits made by Sibiko «A report from the Danish Legation in Moscow to the Danish Foreign
Office m earfy 1925 suggests that the Soviets had problems even in butterproduct™ The butter trust, Maslocentr, operated some 5,820 dairies „d680 cheese factories (about 80 percent of the prewar total, 'but pXdonwas
.
cojribaotj, percentof the xotj total. There were probLswF* te^-£TJ TbUtl0
r,by^epingPr0duCer Priceslow.«^aldairyasso£.
tTe lot
6
H °""*^r^ Pr°fitS fof ** °™ «*»*-£» whichwere not passed on to producers. A certain amount of Danish capital wasinvo ved m ^e regional associations. It was indicated that future^ Lion
^Iquer"°n Pf°dUCt Standardization
.training, and improved
!
T/leSe
^utter a
,
nd eJ&
exPor* were of major importance as, together withWber, they replaced the lost grain exports on which the Soviets^d pll dmajor reliance for fore.gn exchange." Hens had been nationalized soon afterthe Revolution, and eggs were nationalized under a decree signed by Leninon March 3 , 1920. A quota was allotted each farm to be delivered to govern-mem collecting points."govern
FOREIGN AGRICULTURAL COMMUNES IN RUSSIAThe Ira commune was established in April 1922 in Tambov Province on
theestateofPnaceOboiensky.Another commune, the Seyatel, was esSS'heSn an estate rearing considerable repair, by about xo^Local peasant and
mor^rr^r6 r
rportedly friendiy
' and the «™«™ «^X^z«^r^vhe welding of broken *---^ «*In 1923 some zoo returned emigrants arrived in the U.S.S.R. from theUnited States a„d were organized by the Society for Technical Aid ^Rus"
he nL 4 ,7f^T^ " thC Unit6d StateS>into fi- corlune
SSZ ?h '
J*?***» Red »««r. ^e Labor Field, and theEstoman They were settled in the Ukraine and the Don Basin with $x 3o, ooworth of equipment brought from the United States. About 20 percen Cparty members and the rest were sympathizers."
" Ekonomicheikaya Zhizn, January u, i 9j2 .
"Yzf «
tW° P'
1"' Rep°rt No* 394S ' S«Pt""ber 25, ,oa8.
« asss:;™r* Report n°- •* Aprii
<•-<-—
>
(supposedly denied to the U S SH ™%Zt1? Sa*?
fun«ioM of a consulatert^w , ucmca 10 me u.&.Sj.k., a* there was no diplomatic recognition »t the
Industrialization of Agriculture i 27
Another group of repatriated emigrants, mostly metal and textile workers,
arrived later in the year and also settled in South Russia. Their communeswere organized according to city of origin in the United States. The TrudCommune had members predominantly from Boston; Harold (a dairy farming
commune), from Chicago; Proletarian Life, from Cleveland; Krasny Loutch,
an agricultural commune in Nikolaev, from Chicago; and so on.MAt Perm a group of returned agricultural laborers was given 10,000 dessia-
tins (27,000 acres) to farm. 60
The California commune was established by an agreement between the
Soviet of People's Commissars and a group of American agricultural workers
largely from the western United States. The commune was granted 2,700acres in Don oblast to establish various agricultural enterprises on a lease
basis for twenty-four years. A fee equal to 5 percent of all crops grown was to
be paid the Soviet government, with the first payment falling due after the
third harvest. On expiration of the contract, the commune was to hand over
all equipment and livestock.* 1
This commune was not destined for success; it was near bankruptcy within
nine months. The major blow was the loss of three railroad cars containing the
equipment and possessions of the settlers. These cars wandered about Russia
for six months despite '348 inquiries to the railroads.' Two were permanentlylost, and the commune had to pay the freight charges for the wanderings of the
third, placing an impossible burden on their finances.62
Lenin had the announced aim of settling one model American groupm each uyezd, which would have required about 250-300 such groups, a long
way from the 25-30 that actually were settled.63
The communes, particularly the American communes, appear to have beenutilized in an attempt to transfer more advanced agricultural practices into
the surrounding areas. For example in the village of Posovka, Americansfounded a commune in 1020 which created for a period of at least three years
a series of 'circles' devoted to various problems: seed selection, agricultural
exhibition, horticulture, and similar activities.
time). See, for example, the document issued to L. F. Rautancn in New York whichis, in essence, a visa. (316-110-719.)
The Society for Technical Help to Armenia was also organized in the UnitedStates to return qualified Armenian laborers from the United States, to establishtrade schools in Canada and Armenia for training specialists, and to maintainrelations. {Pravda, No. 210, September 18, 1923.)Pravda (Moscow), No. 232, October 13, 1923.Pravda (Moscow), No. 246, October 31, 1922,
Ekonomicheskaya Zhizii, No. 19, January 28, 1023,
'Now the Agricultural Communes Are Perishing,' Pravda, No. 260, November16. 1923-
Pravda No. 246, October 3:, 1923.
128 Western Technology and Soviet Economic Development, 1917-1930
The young Americans are continuing their efforts quietly, without noiseTheir example was not fruitless. In various neighboring villages similarcircles with agricultural purposes have been formed."
The Finnish commune comprised a group of Finns and a few Americanson about 100 dessiatins of land fifteen miles from Leningrad, farmed on acooperative basis. The commune failed because local peasants stole theequipment, there was lack of harmony in the group itself, and finally, taxes,at 5,000 rubles per year, proved to be too much of a burden."*Another Finnish settlement was the Seattle Commune, started by Finns
deported from the United States in 1921. This was more successful. Thecommune was visited in 1930 by M. Farbman, who reported that its wheatfetched higher prices than neighboring state farms."
Gigant State Farm 128 kopecks/poodState Farm No. 2 17 *
Seattle Commune i g3Average all peasants I20
" "
An agricultural union of Dutch descendants in the Ukraine concluded aforeign loan of Si million for purchase of foreign equipment."Communes were supported by the Czechoslovak government to the
extent of fifteen million crowns in agricultural equipment, but, as this wasdistributed to all communes regardless of nationality, it is impossible to assesshowmuch of this sum went directly to the aid of Czechoslovakian communesThe Czech Mission in the U.S.S.R. was also (in 1923) given the right to rentand organize shops for the assembly and repair of agricultural machinery."An Australian commune was established with help from the Society for
Technical Help to the U.S.S.R. in Australia. Mainly from North Queenslandthe group settled in 1921 in the Ukraine (with equipment brought from home)as the Australian Commune."There was a Canadian Dukhorbor commune with some 2,500 members—
but this sect and the Mennonites tended to leave Russia, near the end of thedecade when anti-religious pressures were applied. 70 There was also a
" Pravda (Moscow), No. 276 (December 5, 1923).U.S. Consulate in Helsingfors, Report, October 8, 1928 (3 id-i33-84t) This raDort
d£££ !?•** efTr,
tn« of Lau" R«««»«, a" United States tittzen ofShdescent; .t is usefu as being among the most balanced and objective of the exc7m
otates Kautanen did not regret his experience; ', . . he wanted to see how itworked in Russia. He would advise nobody to go to Russia.'
** Farbman, op. «'»., p. 148.*' Izveilia, No. 246, October 27, 1923." Pravda (Moscow), No. 979, December 8, :g23 .
•• Pravda (Moscow), No. 247, October 31, 1923." U.S. State Dept. Decimal File, 316-135-251.
Industrialisation of Agriculture 129
'Canadian commune 1
near Odessa formed by the Canadian Society for
Technical Aid to Soviet Russia. They were allotted 1,500 dessiatins and employ-ed several hundred Canadians and a few Russians. They brought equipment
for their workshops from the United States.71
The Austrian commune, Imkommune Uhlfeld, was supported by both
the Austrian government and the City of Vienna. The former contributed
800 schillings ($125) for each immigrant (the investment required by the
U.S.S.R.). The City of Vienna gave a similar amount to commune membersfrom Vienna. There were about 600 members in the commune, which settled
in the Kirghiz Republic with the intent of founding an Austrian city based
on regional agricultural development.73
JEWISH LAND SETTLEMENT PROGRAMSWith financial support from the Jewish community in the United States,
Jewish settlers were encouraged to settle on various parts of the U.S.S.R. andparticularly to undertake farming." The act organizing the Committee for
Settling Jewish Toilers on the Land was published in Izvestia on October 13,
1926, which outlines the land distribution and budgetary considerations in the
program. Quite unknowingly, this organization aided the Bolshevik drive on
private trade, renewed in 1924.
American assistance was organized under the Jewish Joint Distribution
Committee, which had cooperated with American Relief in Russia andmaintained a representative in the U.S.S.R. In 1925 land was set aside for
these settlers, and the Joint Committee supplied tractors and other equipment,
dug wells, provided cattle, gave loans for housing and farm building, and gave
instruction in farming. By October 1925, the committee had settled 6,000families on 500,000 acres in the Ukraine and Crimea.
Apparently the land settled could be used only with foreign assistance, as
it was arid and water wells had to be drilled to a depth of 300-400 feet: hencethe comment that 'this is why the country can be settled only by Jews whoreceive money from abroad'. 74
11 Pravda (Moscow), No. 47, March 2, 1923." The commune had a 12-page agreement with the Soviets. A translation is in the
U.S. State Dept. Archives at 3 16-13 1-343." It should be noted that Jewish leaders in the United States, unlike many business
men, took precise care to discuss their plans and actions with the State Departmentand ascertain the government viewpoint on such financial support, in order to avoid«ny possible misunderstanding. (See U.S, State Dept. Archives, 316-137-304,)There were similar organizations in other countries, but little is known of theiractivities. For example, Verein ORT, Gesellschaft zur Forderung desHandwerkeund der Landwirtschaft unter den Juden, a German organization, registered toundertake operations in the U.S.S.R. Ekonomicheskaya Zhisn, No. 248, Octoberas. 1928.
" Izvestia, No. 157, July tj, 1936.
130 Western Technology and Soviet Economic Development, iQi7-rg30
The Joint Committee also provided American plants and administratorsfor distribution and cultivation. 7*
Another 4,000 Jews settled by mid- 1926. This number was held to be'more than in the preceding 100 years, from the foundation of Jewish coloniesduring the reign of Nicholas I.'" Early in 1928, the Soviet government setaside for colonization by Agro-Joint some ten million acres in Eastern Siberia,
between the Ussuri Railway on the north and the Amur River on the south.The administrative office was established in the spring at Khabarovsk andsoon after, tractors, buses, automobiles, and settlers began to arrive. Adverseconditions forced half the settlers back to their homes in the first year, butvery gradually a settlement was carved out of this previously unsettled land."
Ikor, another United States Jewish organization interested in colonization,
sent Dr. Charles Kanz to Siberia in 1928 to investigate conditions at first hand.Some 32,000 people, including the i.ooo immigrants who had arrived theprevious year, lived in a total area of 42,000 square kilometers. Through Ikorand Ozet (a Soviet organization for establishing Jewish workers' settlements),quantities of equipment were shipped to the settlers during the 1929-30season. A commission sent by Ikor to render technical assistance to the colonyarrived in the U.S.S.R. in July 1929.78
The Joint Tractor Commission (1924) was an American-Jewish organizationwith the objective of generally developing Russian agriculture. At this timethe commission had 135 tractors, which it rented out to peasants on conditionthat they create artels in groups farming not less than 20 dessiatins of adjoin-ing land. Payment ranged from one to five poods of wheat per dessiatin. 7"
In 1923 the Jewish-American Committee imported 200 tractors, of which75 were Waterloo Boy (make unknown) and the rest were Fordson. Thesewere put to work in the Ukraine, generally at the disposal of collectives lackinghorses.80
A joint-stock company, Akotprom, was formed in June 1923 to undertakecommercial and industrial business in order to aid the Jewish Committee forRelief.81 French Jewish circles also aided agricultural colonization. In 1923
" Ixvettia, No. 64, March 10, 1923." Ixvatia, No. 140, June 20, 1026.
" y-S-.Consulate in Harbin, Report January 22, 1929, However, there are two sidesto this story. Reports indicate that the Soviet* had great difficulty after the first yearin getting anyone to go to Biro-Bidjan, in Siberia, and gave each village and town• quota to fill for •ettlen to populate this 'God forsaken [sic] country.' [Report May
'• Pravda (Moscow), July 6, 1929." Ixvettia, No. 140, June 20, 1926,10 Pravda, No. 166, July 26, 1923.11 Ekonomicheskaya Zkixn, No. 142, June 26, 1923.
Industrialization of Agriculture 131
some three million French francs were sent under an agreement, renewable
annually, to Jewish families settling on the land.84 In retrospect, one can only
conclude that these settlements were little more than attempts on the part of
the Soviet Union to extract foreign Jewish assistance. None of the settlements
have survived.
THE FATE OF THE AGRICULTURAL COMMUNESIn early 1923 reports began to filter out of the U.S.S.R. concerning the
desperate state of foreign communes. Many settlers were left without land
allotments; others were in need of assistance, and some were caught in the
squeeze between rising costs and low prices for grain and dairy produce. 83
The commune was a failure, and its fate is well described in a Pravda article
of late 1923. The author pointed out that incoming communes should have
had every chance to become models of efficient agronomy. They brought in
modern equipment, totaling to that time some $600,000 in value, and the
membership, skilled and efficient, contained a large percentage of Party
members. 'In general they arc energetic, businesslike, Americanized people.' 81
It was pointed out that in areas where land was lying idle, the communeEcho was given 'wild prairie' without a single building, with two of the sections
connected by a narrow corridor 1 kilometer wide and 15 kilometers long.
The Canadian commune in Odessa lost five baggage cars for six months;
finally only three of the cars arrived. 85 The John Reed Commune in Podol
Province did not obtain land for nine months, and then received a ruined
estate. The Red Banner Commune waited seven months for land! and after
working it for a while was expelled and force to sell its equipment to pay
moving costs. The Novy Mir Commune received buildings infected with foot
and mouth disease. The communes, it was stated, were breaking up. Somemembers were going back to the United States, and some were wandering all
over Russia. Said the Soviets, ' ... we are losing very precious and impor-
tant breeding stations of agricultural knowledge; we are killing the cause with
our own hands.' 8S
On the other hand, some communes must have survived for several years,
as they were still importing American equipment in 1926. The Ira imported
$35,000 worth of agricultural equipment in early 1926, the Agro-Joint
" Ekonomichetkaya Zhizn, No. >8, January 27, 1923.11 IS Report, December 8, 1923. (316-133-339.)" Pravda (Moscow), No. 260, November 16, 1923.
" Pravda (Moscow), No. 260, November 16, 1943. Elsewhere it is stated that twocars out of three were lost.
» Ibid.
132 Western Technology and Soviet Economic Development, 1917-1930
commune just over 839,000 worth of equipment, and AIK, in the Kuzbas,$4,345."
In the end, however, they all perished.
THE AGRICULTURAL EQUIPMENT MANUFACTURINGINDUSTRY
Toward the end of the nineteenth century, Russian farming, as a result ofthe introduction of modern agricultural machinery and implements, under-went extensive technical improvement. Peasant credit associations, fundedby government banks and the zemstvos (district councils) encouraged this
trend. Spurred by these changes, the manufacture of agricultural implementsexpanded rapidly; by 1908 there were over 500 plants, not including peasantindustries, also of considerable importance. In 1908 the plants producedmore than 390,000 ploughs, 8,800 seeders, 61,000 reapers and mowers, 22,000threshers, and 31,000 winnowers.88 By 1913 the number of establishmentsincreased to more than 800, employing 39,000 workers and including verylarge plants funded with Western capital. By far the largest was the Inter-national Harvester plant, covering sixty-two acres at Lyubertsy, near Moscow.This plant, opened in 1911, provided employment for 2,000. The companyhad an extensive and well organized service network in Russia; the Omsk(Siberia) branch of International Harvester was the largest overseas branchoperated by the company.8*
Agricultural exhibitions, credit associations, and other forms of governmentaid enabled Russia to develop a relatively advanced agricultural economybefore World War I. Agricultural products were exported on a large scale;
at the turn of the century Russia had become the world's largest exporterof wheat.
The equipment plants survived the Revolution; exactly the same number(825) were reported available for use in 1923 as in 1913, but their output haddeclined catastrophically. In 1923, the Soviets produced only 12 percent ofthe ploughs, 70 percent of the scythes, 26 percent of the sickles, and betweeni and 8 percent of other implements which had been produced in 1913.
110
The early 1920s were characterized by continuing crises in the industry.The 1921-2 plan for agricultural machinery was less than 50-percent fulfilled,
" Amerihamkiai torgoolia i promyshlemuaf (New York: Amtorg Tradinn Company.June 1926), p. 40.
r "" Rtution Yearbook; 101a (New York: Macmillan, 1912), pp. 157-61. This evidence
appear* to refute the numerous statements that agricultural machinery output inprewar Russia was negligible. For an example, see Friedman, op. at., p. 81.
*• World Harvester, November-December 1953." Bitdnota, No. 1487, January afi, 19*3.
Industrialization of Agriculture 133
and productivity per worker only 43 percent of prewar. 91 Kooperativnoe Delofor June 1922 describes the chaos into which the industry had descended. Ofthe 825 enterprises working in 1913, only 73, or 9 percent, were working at
all, and most of these in a half-hearted manner.
To overcome production difficulties, the industry was consolidated.
Prerevolutionary works in the Ukraine were now grouped into two trusts:
Ukrselmashtrestand Zaporozhtrest. In October 1923, eleven of the twenty-oneplants in these two trusts were combined in the Vseukrainsky Selmashintrest,
and the remaining ten were closed down. Specialization of output wasincreased. Drill seeders were now produced at Elvorty, Helferlich-Sade(in Kharkhov), and Kiranon-Fuks. Reapers were produced by the Donsky(Nikolaev) and Kopp (Zaporozhia) works. Threshing machines were producedat Elvorty, Helferlich-Sade, and Lepp-Valman. However, major deficiencies
reported for 1925-6 suggest that concentration did not get to the root of the
problem."
Selmashstroi reported in 1923 that the decline was due to the high cost ofproduction and inadequate financing. The deficiencies had now becomemonumental. Production and imports together failed even to offset normalwear and tear, and peasants were reverting to the use of primitive, hand-madewooden equipment.
ATTEMPTS TO DEVELOP A SOVIET TRACTOR, 1922 TO 1926
The Soviets made numerous unsuccessful attempts to produce a workabletractor in the early years of the 1920s. These ended in failure, and the SovietUnion then turned to the United States for assistance in constructing themassive tractor plants of the Five-Year Plan.
Two designs were completed in the Soviet Union about 1923, both by I. B.Mamin. The 'Gnom' design was selected as being suitable for Russian agricul-tural conditions, and Mamin was sent to Germany (with 130,000 rubles) to
purchase the necessary production equipment. The Balakov factory in Samarawas turned over to 'Gnom' mass production. It was anticipated that 150 ofthese small, 16-horsepower, oil-driven tractors would be built in the first yearand 250 to 300 per year thereafter. No complete units were produced, althoughsome engines were used for a while as stationary power units.
The other Mamin design was the crude oil tractor, 'Karlick,' with a one-cylinder 12-horsepower engine. This was built at the Old Neurepublik worksat Marmstadt on the Volga. Some were produced, but, like the 'Gnom', they
" Pravda (Moscow), No. 279, December 8, 19*3." U.S. State Dept. Decimal File, 316-129-969.
134 Western Technology and Soviet Economic Development, igiy-igjo
were too heavy, too clumsy, and insufficiently powered for field use, and were
used only as stationary power units.*5 Another tractor, the 'Bolshevik', a
4-cylinder, 20-horsepower machine was also attempted at the Bolshevik Works
in Leningrad. Only a small number were produced, in 1923-4, and production
ceased entirely before 1926. The Ford Delegation suspected it was for military
transport work, as it was too large and clumsy to perform as a tractor,'*
The 'K.P.Z.' tractor was a 4-cylinder, 50-horsepower machine built at the
Kharkov Locomotive Works. This was a copy of the German tractor, 'W.D.'
It was expensive (15,000 rubles) and much too clumsy for field use. Production
stopped before 1926."
Several hundred of the 'Zaporojetz' were built at the Ukraine Agricultural
Machinery Trust. This was a 3-wheeled, 1 -cylinder, 12-horsepower machine,
very heavy (2 ton) and useful only as a stationary power unit. It was priced
at 5,000 rubles, expensive when compared to the imported Fordson (1,800
rubles).**
Two additional tractor models were attempted at the Kolomensky Machine
Works at Golutviko near Moscow. One was the 'Mogul', a 4-cylinder, 12-25-
horsepower machine : an'exact copy of anAmerican tractorby the same name. '
"
The other was a 2-cylinder, crude-oil copy of the Swedish tractor, 'Avance,'
but with transmission and gears as in the 'Mogul', built in the same plant.
Production of both was very small and ceased by 1925-6.*8
Work was also started on an experimental electric plow: an example of
Lenin's preoccupation with electrification. A contract was issued in 1923 to
plow 16,000 deasiatins with 16 electric plows. When the season was over, only
one had worked any length of time, and only 477 dessiatins had been plowed.
In the following year, 5 plows undertook 4,000 deviating, but actually plowed
only 300. The trailer was found to be 'extremely b^avy and constantly buried
in the ground.'** It was expensive and impractical; the experiment was
discontinued in 1926, although it has been revived at intervals since that time.
Work also started on several models of oil-futied tractors. 'An exact copy
of an American tractor built in 1922'100 (100 'Holt') was placed in production
at the Bolshevik plant, near Leningrad. The carbure'ors, ignition system, and
other parts were imported from the United States. Work continued for one
" Report of the Ford Delegation to Russia and the U.3.S.R. April-August 1926(Detroit; 1926), Ford Motor Company Archives Accession No. 49, p. 42.
** Ibid., p. 41, The report hu photographs of these RuaMan model*.
« Ibid.
" Ibid.
" /«rf.,p.4o.
" Ibid., p. 46.
" Ibid., p. 102.
«* Ibid., p. 103.
Industrialization of Agriculture 135
year. Between 1924 and 1926 the plant only made spare parts, but this also
ceased in 1926. The Ford Delegation (1926) reported the 'Russian Holt' to be
a product of extremely high cost and poor quality.
INTERNATIONAL HARVESTER COMPANY ANDNATIONALIZATION
According to Keeley, 101 the International Harvester plant at Lyubertsy,
just outside Moscow, continued operation through both revolutions and the
winter of 1919-20 with only a single three-day strike. Cromming, the German
manager, produced equipment for the Bolsheviks on a cost-plus- 10-percent
basis, the percentage to cover the living expenses of the chief executives and
himself. Cromming agreed with the Workmen's Committee to supply food
(no small promise), in return for complete authority over technical operations
of the plant. Cromming apparently acted on his own initiative; he was reported
as not knowing whether the parent United States company had even wanted
to continue operations after the Revolution.
In 1921 the Soviets offered an agricultural equipment manufacturing
concession to an unknown United Kingdom tractor manufacturer. The offer
was passed along to International Harvester, who in turn passed it on to the
State Department with a notation that the company was cool to the proposition
but worried lest British and German interests accept a concession to manufac-
ture tractors and freeze out International. 102
It is clear that, although Cromming operated the Moscow plant and Inter-
national Harvester was concerned for the welfare of employees inside the
U.S.S.R., including several engineers sent in 1921, the company did not press
for modification of United States policy. Mr. Legge of International is quoted
as saying, 'Nothing has occurred up to the present which would justify consid-
erations of change in policy of this Government.' 1<0 In 1924 rumors circulated
about an impending takeover of the Moscow plant101 which was, in part,
accomplished before the end of 1924. The enterprise immediately slumped
into substantial deficit, a subsidy of 1.8 million rubles and a credit of 466,000
rublesbeing required on expenses of 3.49 million rubles. Even more catastroph-
ic was the effect of the August decree of the Council of Labor and Defense
equalizing prices for domestic and imported tractors. In February 1925,
101
lot
101
U.S. State Dept. Decimal File, 316-107-97.
A copy of che proposed concession agreement is in U.S. State Dept. Decimal File,
316-130-1161. There is a marginal notation, marked HH (Herbert Hoover), thatgreat importance was attached to this offer—presumably on the part of theAdministration,
U.S. State Dept. Decimal File, 3i6-io8-»3.m Rumors noted in 361. its of the Decimal File, 316-108-1279.
136 Western Technology and Soviet Economic Development, 191J-1930
Glavmetal confirmed the first year's program of 1,000 hay harvesters and
600 reapers planned for Lyubertsy. The hay harvesters were estimated to
cost 130 rubles apiece, against 190 rubles for imported harvesters. Glavmetal
then reversed itself and requested Vesenkha to dismiss the 'acceptance com-
mittee' which had been taking over the factory from the International Har-
vester Company.108
A rapprochement took place in 1925. In August, International Harvester
was granted permission to conduct trading operations within the U.S.S.R.
and supply spare parts for agricultural machinery. 10* The company then began
to advance substantial credits forthe purchase ofAmerican-made equipment.107
At the end of 1925, all International plants were denationalized ; according to
the German Embassy, they were found too complex to operate and Inter-
national Harvester temporarily re-entered its own factories.108
The Bolsheviks had the last word. The Selmash trust was liquidated
November 16, 1926 and a committee established to wind up business,
including the claims of the Lyubertsy works of International. On March 7,
1927, the trust was placed under moratorium, and all claims against it suspend-
ed. The United States Riga consul comments:
Thus the legal guarantees which existed at the time when the creditors
entered into business with the syndicate [i.e., trust] were suddenly with-
drawn, leaving the creditors of a Government organization at the mercyof a Government commission and depriving them of a part of the
lawful interest on their money. It will be noted that the moratorium is
entirely one sided and does not suspend the obligations of the syndicates
debtors . , .lw
As late as 1929, International was still trying. It negotiated a contract for
the sale of 5,900 International tractors on three-year credit terms, including
clauses which allowed the U.S.S.R. to send technicians to the United States
for training and required International engineers to give consulting services
on the establishment of a network of tractor-repair shops.110
The contribution of Lyubertsy and the International Harvester Company
to Soviet industrialization is best summed by a Soviet publication:
The Lyubertsy enterprise is a shining example of the good sense of
'Nep.' The Harvester Company rendered the hated Bolsheviks the sameservice that Harriman performed in Chiatury and Krupp in the Ukraine.
**• Ekonomichetkaya Zhizn, No. 29, February 5, 1925,,M Torgovo-Promyshlemuiya Gaztta, No. tBs, August 15, 1915."' German Foreign Ministry Archives, Ti 10-303J-H10945. The company advanced
S2.5 million on 18-month terms.
»« Ibid.
,M U.S. Consulate at Riga, Report 4449, April 12, 1927. (316-111-924.)110 Ixvettia, No, 149, July 3, 1929.
Industrialization of Agriculture 137
These firms helped them to train a nucleus of skilled workers in theseenterprises and to learn the process of production which soon enabledthem to continue production without the capitalists. Today there are fewconcessions left in Soviet Russia and not even the Vorwaerts dares to
assert any longer that the Bolsheviks have introduced capitalism. . ..'"
At the same time, 1,300 60-horsepower Caterpillar tractors were purchased
for delivery in November-December 1929, with similar clauses for technical
assistance. Caterpillar sent engineers and technicians to the U.S.S.R. to
instruct in the operation of tractors, and Russian engineers went to Caterpillar
plants in the United States for further instruction on maintenance. Thecompany opened a permanent office in Moscow to solve problems arising in
the utilization of their tractors. 112
POSITION AT MID-DECADEThe 1924-5 plan for tractor manufacture concentrated production in larger
prewar plants taken over by Glavmctal; Krasnyi Putilovets was planned to
produce 500 tractors, Gomza 500, and the Kharkhov plant 120,
These targets were not achieved, and attempts to create a tractor industry
were described by Dr. G. Schlesinger, a German tractor expert, as 'creating
a laughable impression and extremely amateurish.' In an effort to induce the
peasant to buy the miserable product of the Soviet tractor factories, a decree
was published in August 1925 equalizing prices for Soviet-made and the
much cheaper and better- quality imported tractors. In effect, the prices for
imported tractors were raised.
Table 7-2 PRICE SCHEDULE FOR SOVIET AND FOREIGNTRACTORS (DECREE OF AUGUST 1925)
Russian Rubles
Krasnyi Putilovets (with plow and spares) 1,800 (cost 4,000 rubles)(copy of Fordson)
Kolomenets (with plow and spares) 2,300H.P.Z. (without plow) 3,oooZaporozhets (with plow and spares) 2,000Karlilc (with plow and spares) 2,000Bolshevik (planned) (with plow and spares) 8,000
American
Fordson (with plow and spares) 1,800 \ (now including 165 rublesInternational (30 h.p.) (with plow and spares) 4,000/ tractor subsidy tax)
Source: Ekonomicheskaya Zhizn, August 18, 1923.
An implementing decree of the Council of Labor and Defense had the
stated objective of providing the largest possible distribution of tractor power111 Theodor Neubauer, Lyubertsy; a Cross Section of the Five Year Plan (Moscow
:
Co-operative Publishing Society of Foreign Workers in the U.S.S.R., 1932), p. 17.111 Ekonomitkeskaya Zhizn, No. 160, July 16, 1929.
138 Western Technology and Soviet Economic D^l&bment, 1917-1930
for the improvement of land cultivation.118 Import*! Fordsons and Inter-
nationals normally sold well below the prices of tiie'fcw domestic tractors;
after the 1935 decree the imported Fordson and the Krasnyi Putilovets copyof the Fordson both sold at 1,800 rubles, as indicated in table 7-2. The stated
objective, of course, was not fulfilled: the domestic pioduct was far below the
imported quality. The peasant preferred the imported tractor, but surplus
accruing from taxation of the imported tractor was used to offset the deficit in
domestic production, and in effect subsidise domestic 'ractors.114 Agricultural
productivity suffered while industry tried to overcome production problems.
Russian tractor works in this period were chronically inefficient. ThePutilovets required 350 man-days per tractor produced, and at the KharkovWorks the assembly of a tractor motor required eight man-months.1" In 1926an inspection of the agricultural machinery factories of Riazan, Tula, Orel,
and Belokhuminsky revealed that the raw-material supply, particularly that
of iron and steel, was hopelessly deficient. Tula, for example, received only
8 percent of its iron and steel requirements in 1925-6. In addition, equipmentwas out of repair and in need of replacement. 1"
The dismal plight of the tractor-building industry was investigated in
June 1925 by the above-mentioned Dr. Schlesinger, at the invitation of
Orgametal. Conditions must have been pretty miserable; EkonomicheskayaZhizn made the point that 'one must not become downhearted.' 117
Schlesinger's specific recommendation was a plant to built 10,000 tractors
a year 'with the special machine tools that are being built by American factories
for Ford,' to replace the outmoded tractor works.
The 1925-6 plan for domestic tractor-building allowed for only 1,800
tractors: 1"
Type *FP' (Fordson-Putilovets) 900 tractors
'Kolomenets' 250 tractors
'Zaporozhets' 300 tractors
'Karlik' 100 tractors
'Bolshevik' 100 tractors
'Comintern' 150 tractors
1,800 tractors
"' Decree is reprinted in Ekonomicheskaya Zhizn, No. 186, August 18, 1925.,u Thi» was almost the supreme insult so faras the Ford Motor Company is concerned
:
the unauthorized Soviet copy of the Fordson was subsidised at the expense of theimported Fordson. The 'subsidy tax for Russian tractor industry' was 165 rubleson a Fordson—about 8 percent of cost.
"• U.S. Consulate at Riga, Report No. 3237, September 28, 1924. (316-133-516.)"* Ekonomicheskaya Zhixn, No. 87, April :6, 1926."' Ekonomichtikaya Zhizn, No. 130, June 11, 1925.u* Ehonomkhetkoya Zhizn, No. 290, December ig, 19*5.
Industrialization of Agriculture 139
The intent in 1925-6 had been to supply 16,750 tractors, of which 1,800were to have been made in the U.S.S.R. The balance of 14,950 tractors
(89.2 percent) were planned as imports, 119 Actually, less than 900 tractors
were produced, and most fell to pieces after a few weeks or months in opera-
tion; in effect, almost all usable tractors were imported.
KRASNYI PUTILOVETS AND THE FORD MOTOR COMPANYAlthough the International Harvester plant had been the largest in tsarist
Russia, the oldest and most famous undoubtedly was the Putilovets in St.
Petersburg, which was founded in 1801, and 100 years later was claimed asthe largest manufacturing plant in Russia and also the largest in Europe,apart from Krupp in Germany and Armstrong in the United Kingdom. 1*
The firm had licensing agreements with Western companies; one with theBucyrus Company (United States) dated from the early 1900s and coveredthe manufacture of placer dredges and steam shovels. 181 The Revolutiondispersed its skilled workers and managers, and it was not until January 1922that some sections began operating again, with German engineering assistance.
We do know something of the mechanical condition of the plant during theperiod 1917 to 1922 (the five years of 'technical preservation'). A report exists
which indicates that equipment was intact, although '60 percent worn out';
blame for non-operation was placed on the enemies of the people:
It was at that moment impossible without any prepared plan to put all
in order, because of the opposition (not shown openly) of the differentspecialists towards the Working Peasant Power. 122
Later some emigres from Detroit were sent to Putilovets, and the 1926 FordDelegation reported that the works was well equipped with United Kingdom,Geiman, and American machine tools, and that it was
... not at all badly arranged, with machines in progressive order, andit was the only shop visited that was provided with special tools andfixtures to any extent. The manufacturing methods, jigs and fixturesstrongly reflected Ford practice at the old Dearborn plant. 12*
The plant had then been reopened about a year before, and employed some800 workers. The delegation estimated production at three tractors per month.
"' U.S. Consulate at Riga, Report 3529, January 18, 1916. (316-133-559.)tn The Works 'Red Putitovez': A Short Historical Description. Typewritten maundated, origin unknown. Hoover Institution, Stanford University.
"* £»«""'/<»' Digging: The First 75 years of Bucyrus-Erie Company (Evanston:Northwestern; 1955), p. 85.
»" The Workt 'Red Putilovez': A Short Historical Description, p. j S .
'*' Ford Delegation Report (1026), pp. 48-9,
140 Western Technology and Soviet Economic Development, IQ17-193Q
There was a sprinkling of ex-Ford Motor Company employees throughout the
plant, including the final inspection area.
Ford, the arch-capitalist, then attracted the envious attention of the
Communists. Fordismus and Fordizatsia as work methods became bywords;
if Ford methods would work in a capitalist country then they must surely
work in a socialist country.124 The initial relationship between the Ford MotorCompany and the Soviets was purely one of trade. Between 1922 and 1926,
Ford sold 20,000 tractors to the U.S.S.R., each with its own set of replacement
parts. By 1927, more than 85 percent of all trucks and tractors used in the
U.S.S.R. were Ford-built from Detroit. The balance was a mixture of import-
ed Fiats, Case, Internationals, and some United Kingdom models, together
with the scrambled output of the A.M.O. plant in Moscow (attempting to
reproduce Fiat trucks and repair White trucks), the ex-International Harvester
plant, and the decrepit prerevolutionary tractor plants in Moscow andKharkov.
The 1926 Ford Delegation to the U.S.S.R. found Ford products everywhere.
The Ukrainian government owned 5,700 tractors, of which 5,520 were genuineFordsons. Azneft had 700 automobiles, of which 420 were Fords. The major
problem facing Soviet organizations was servicing, and this was also the
primary interest of the five-man Ford team. The delegation traveled through-
out the U.S.S.R. giving lectures and lessons on servicing and cost reduction,
and setting up training schools and service organizations along Ford lines
elsewhere in the world. The existing servicing was found to be 'wretched.'
Charts and diagrams produced in abundance on request meant nothing: in
practice, little in the way of either maintenance or repair was being done:
Our surprise can be imagined when we arrived in the Ukraine, the richesttractor district in Russia, and were unable to find a single Fordson repairshop worthy of the name. No special repair equipment existed anywhere,although fourteen full sets of Fordson (repair) equipment had lately beenreceived for Ukraine alone. . . .
mIn 1923 the State Trade Commission had been given the responsibility of
developing a network of sale and repair shops to be tied in with the majorrepair points established by the Fordson sales organization in the U.S.S.R.
Apparently the trade commission had not established its repair shops, andthe Fordson shops had been neglected.1M
The 1928 Sorensen mission to Russia inspected the Krasnyi Putilovets
plant, and, as Sorensen relates it:
"* 'Fordismus,' Bohkaya SoveUkaya Entsiklopediya (1933).i« Ford Delegation Report (1916), p. 49,i" Ekonomtchttkaya Zhixn, No, 48, March 3, 1923.
Industrialization of Agriculture 141
We came into . . . the assembly room and I stopped in astonishment.There on the floor lines they were building the Fordson tractor. . . .
What the Russians had done was to dismantle one of our tractors in thePutilov Works, and their own people made drawings of all the disassem-bled parts.1"
However, as Sorensen pointed out, it was a long way from pulling a machineto pieces to building workable copies, and the Russians had neither the
specifications nor the skills to turn out good copies. The Fordson-Putilovets
tractor experiment provided little more than technical education.
In brief, at the mid-point of the 1920s, the Soviets had five prewar agricul-
tural machinery plants, suitable for small-scale tractor construction. Howeverthese plants were costly to operate and technically backward. They made a
hopelessly insufficient and inefficient contribution to agricultural development.
The solution was to turn to American technology. The poor Krasnyi
Putilovets works was therefore completely re-equipped with American
equipment128 and, by technical-assistance arrangement, placed under the
management of the engineering consultants Frank Smith, Inc. 12* A series of
large-scale tractor building plants was then envisaged, utilizing the latest
American mass production methods. The first of these was the Stalingrad
(followed by the Chelyabinsk and Kharkov), designed by Albert Kahn, a
United States construction design firm, and built by McClintock and Marshall,
also of the United States. 130
Albert Kahn had been the builder of the large mass-production plants of
the American automobile manufacturers, and he incorporated the skills andideas of American experience in mass production. The Stalingrad tractor plant
was designed to produce 40,000 tractors a year in two shifts. With UnitedStates assistance, the Soviets produced similar tractor and automobile plantsin the 1930s.
The Soviets had a clear concept of the advantages to be gained fromimporting this technology in toto, and the contribution it would make to the
achievement of the first Five Year Plan
:
The utilization of its [i.e., Kahn's] technical assistance assures the execu-tion of the construction work of the Traktorstroi within the specified
time and guarantees the employment of all the achievements of modernAmerican technique. 131
"' Charles E. Sorensen, My Forty Years with Ford (Hew York: Norton, 1956), p. 2oz.The plant certainly did not impress Sorensen, who suggested they take some sticksof dynamite and 'blow it out of its misery.
1
*" Friedman, op. tit., p. 438."• U.S. State Dept. Decimal File, 316-131-654."• Ibid.
"l
Xhe aKr«ment between Albert Kahn and Glavmashinostroi is reported inTorgovQ'Promyshlennaya Caseta, No. 109, May 16, 1929.
H2 Western Technology and Soviet Economic Development, i9i7-x93qM^ COmp^FK^td c°ns<ruction Plans in the United States
The company Jen lured American engineers to handle the erection of thebuddmgs, worth about 8 million rubles (83 million). The production equip!ment was purchased in the United States. 13*
Table 7-3 TECHNICAL-ASSISTANCE AGREEMENTS (TYPE IIDWITH THE POST-REVOLUTIONARY TRACTOR '
^^^^^ CONSTRUCTION INDUSTRY TO 1930
Technical Protu, WuUn p—
G^SSraSSSv P " Ingi? SchI«-8« (Germany)
"safe-ure«— M^Mffit,te:-PP
A^-
r
i^'Russi'" chaa,ber °f c°mmeree
-^-^^o/^^Although the tractor industry, heralded as the basis for socialist agriculture inthesamemanne,-that electrification had been associated with induLialkatJ
Tn ^dT Pr°?lr f°r
?UCh
°f thC deCadc'the «»«* -^-f- • "-d1^ *f
S'mpler Wnd °f e<JuipmenL Scythes- *™£ Pitchforksplows harrows, and w nnows were prohibited from import, as it wL planned'
IculSal e
demand f
l°m RUSSUn faCt°rieS
'
The simP'« «««• ofagricultural equipment were subject to a heavy duty of 4 = ruble* Der Inokrlograms, whereas the more complicated mecha'nic/equip'mem wi a low d« duty-free
;reapers binders, disc harrows, and all newly invented or improv dequipment required by model farms were allowed in without duty. However
tte
wTJ{fh°f
ag« °f simP'e e^P-ent reduced the ability o/the peasanito work his land, and m some areas the peasant actually returned to 5» useof wooden implements.131
We may conclude therefore, that in agriculture the transfer of Westerntechnology was not notably successful. The hostility of the peasant thecollection of agriculture, the undue attachmen/to imagery mWe" S^^V^ST' "' N°- 7 (Ju 'y ,9a9)
"< : Bnd US
- *~ O^"' EuSWgSi^ns«r6V^(3,6-,"T) The
winnow*. 1+0,000 plows, (114,000 harrows, and 17,000
Industrialization of Agriculture j,,
economies of scale, and the misunderstanding of the factors making for successin Western large-scale agriculture made for ineffective transfer.
Kuibyshev's lengthy report of April 1927 suggests the great gap betweenthe Soviets' achievement and their fantastic claims. While Krasnyi Putilovetswas Struggling to make a few ersatz copies of the Fordson tractor, the effortwas thus described by Kuibyshev:
... a mass of difficulties has been solved brilliantly, the production oftractors is getting cheaper and cheaper and the quantities produced bythe Red Putilovets are ever increasing. . .
.***
In the agricultural equipment industry, nothing of substance was achievedin tractor production until the very end of the decade, and implement manu-facture was unfortunately ignored in favor of the tractor—the favored Bolshe-vik symbol of industrialization. The failure of adapted prerevolutionaryplants to make tractors, whether of native design {the Gnom) or stolen design(the Fordson) forced the Soviets to arrange for Western tractor manufacturersto install packaged 'knocked-down' plants in the U.S.S.R. 15*
CREDITS GRANTED BY AGRICULTURAL MACHINERYPRODUCERS TO THE SOVIET UNION, 1925
The Soviet Union had no trouble purchasing agricultural machinery oncredit terms. The Ford Delegation Report (1926), for example, notes:
International Harvester, which lost huge sums of money in Russiathrough nationalization of its property and equipment, are now extendingtwo years credit to the Soviet Government.
An International Harvester invoice dated August 18, 1925, indicates thatthe cost of the International 1 5-30 tractor to the Soviet government was $1 , 1 coand the 10-2o tractor S775 (both f.o.b. New York). Terms were as follows:
50 percent three months after purchase16.6 percent August 15, 192616.6 percent November 15, 192616.6 percent May 15, 1927
Interest was charged at 8 percent in the first year and 6 percent in the second,Case Machinery was granting about the same terms. Advance-Rumlcy
which had about 6oo to 800 of its 'Old Pull' tractors in the Soviet Union, wasoffering less favorable terms, and this limited its sales. An invoice dated August12, 1925, places cost to the Soviet government at $1,000, and offers terms at10 percent with order, 40 percent against documents in New York, and 25percent in each oftwo payments, to be made November 1, 1926, and November
1,1Imiettia, No. 94, April 27, 1917."s Construction of the Stalingrad antJ other tractor plant, is covered in Vol. J I.
144 Western Technology and Soviet Economic Development, 1917-1930
1. 19*7. Dodge Brothers was offering nine-month terms with only 6-percentinterest for lots of more than 50 tractors, but required So-percent paymentagainst documents for any size of purchase. Massey-Harris, in Canada, sold300 binders in August 1926 on terms of ,0 percent with order, 20 percentagainst documents, 10 percent three months from date of delivery, and thebalance ,n August 1927. Fordson, who sold the bulk of the tractors in theU.S.S.R., required 25 percent down and the balance over nine months orone year. These terms were not, however, as favorable as those obtained by*e Soviets for automobiles and trucks. Steyer in Austria and Mercedes inGermany both gave three-year credits, and Renault in France two yearsOf a total 24,000 tractors in Russia in August 1926, 20,000 were Fordsons,2,400 were International Harvesters, 7oo were Advance-Rumley, and 900were miscellaneous (including Soviet makes).
w,•!h
n^^
light0fiheSe St
,
atiStiCS 3tatements ** the Soviet Union developedwithout foreign financial assistance are seen to be manifestly untrue
CHAPTER EIGHT
Fishing, Hunting, and Canning Concessions
The small group of fishing, hunting, and canning concessions was moreimportant as a contributor to foreign exchange earnings than as a channelfor the direct transfer of technology. Furs, for example, were the secondmost important Soviet export and indirectly, by generating foreign exchange,aided the technological transfer process.
NORWEGIAN FISHING CONCESSIONSIn early 1023, an agreement was made between the Norwegian firm Vinge
and Company and the People's Commissariat of Supplies, under which theNorwegians were given the privilege of hunting 'sea animals' within theterritorial waters of North Russia. The company equipped fifty-six ships forthis purpose. Vinge and Company paid 200,000 Norwegian crowns for thisright. 1
For the second year of operations the Soviets demanded negotiation withthe ships' owners who had been organized with Vinge as their bargaining agentin the first year. In the second year, rental was set at S10 per ton for shipsemployed hunting seals, with a minimum payment of $40,000. Provision wasalso made for Russian scientists to study fishing methods and fishing locations,on board the 'best' of the ships in the fleet.8
An additional contract was also concluded for the 1924 season, under whichVinge was granted the right to fish for white sturgeon along the RussianArctic coast.3
A concession was granted to the Norwegian citizen Christensen in May J 923to hunt whales and reduce these to food products within a zone extending alongthe Arctic coast of Russia. It was granted for a period of fifteen years, and the
1 Rustian Economic Review, III, No. 8 (June io, 1923), u.* Ekonomicheskaya Zhizn, No. 71, December 23, 1923.' Ekonomtehetkaya Zhizn, No. 303, October 7, 1924.
146 Western Technology and Soviet Economic Development, 1917-1930
Soviet government received a portion of the profits unstated but not less
than £2,000 sterling per year. Each ship manned by Christensen was
required to have at least sue Russian seamen, and shore enterprises operated
by the concession were required to employ not less than 25 percent Russian
workmen.*
A group of German fishing firms working in the Murmansk area was granted
a concession in 1924 to fish in certain northern waters disputed by the U.S.S.R.
and Germany. The group holding the concession was known as Wirtschafte-
liche Verband der Deutschen Hochseefischerein and was based in Bremen. 1
FUR AND SKIN CONCESSIONS
The Hudson's Bay Company ofthe United Kingdom and Canada concluded
a concessions agreement with Vneshtorg in April 1923, under which the
company agreed to export to Kamchatka, in the Far East, goods to the value
of $350,000, at prices not exceeding the London market price plus 20 percent.
The company could also purchase furs on the peninsula in cooperation with
Vneshtorg. The furs were to be exported to London, where 10 percent of the
value was payable to Vneshtorg, and any profit resulting from the ultimate
sale of the furs was to be divided equally between Hudson's Bay and Vnesh-
torg. A similar agreement was reported with Glavconcern for smoked fish
and furs." The company was required to pay all state and local taxes, license
fees, and export and import taxes.
The winter buying season did not go untroubled for Hudson's Bay. Therewere petitions from Kamchatka in which hunters requested the government
... to free them from the criminal activities of the Hudson's Bayfirm . . . agents of the firm deliberately value furs at 50 percent belowlast year, and sables of the highest quality are valued at the same priceas skins of the lowest quality. . . . The firm has double income whereasthe population suffers treble losses.'
The Persian Iamb fur market in the United States was dominated byBrenner Brothers, of New York. In the fall of 1922, Kalman and Feival
Brenner made a buying trip into Russia and purchased 'a considerable quantity
of furs,' for delivery to Paris and New York. They considered uncertainty too
great to warrant more extensive dealing, although they were offered an 'attrac-
tive proposition.' *
* Ismettia, No. 113, May 24, 1923.* U.S. State Dept. Decimal File, 340-5-806.* Rigaichc Naehrichten (Riga, Latvia), April 14, 1923.' Pravda (Moscow), No. 40, February xo, 1924.* U.S. Consulate at Riga, Report 2729, September 25, 1922. (316-107-1034).
This deal apparently went through because Brenner's Siberian representative hada brother who was a 'high government official in Moscow.'
Fishing, Hunting, and Canning Concessions 147
Karl Brenner, a partner of the firm, was approached by Arcos agents in
1924 with another $1 million proposal. In return for the exclusive right to
purchase furs within the U.S.S.R., they could buy at 15 percent under the
market price or be repaid at an interest rate of 10 percent. Brenner pointed
out that Arcos had overheads of 35 percent in handling furs while Brenner
had a 50 percent markup. They considered the U.S.S.R. had reached the
end of its financial resources and refused to deal.' The company registered
for business and purchased 500,000 rubles of furs in the 1924-5 season.10
In the same season, J. Wiener, of New York, was registered for operations
in the U.S.S.R. and purchased 400,000 rubles worth of furs.11
Probably the largest of the fur concessions was that of Eitingon-Schild,
which in 1924-5 handled 4 percent of the total trade turnover between the
United States and the U.S.S.R. 12
A dispute between the Eitingon-Schild concession partners in United States
courts revealed the substantial profits made by a few successful concessions.
Representing Eitingon-Schild, Otto B. Shulhof, of New York City, went to
London and then to Moscow in 1922 to negotiate a contract for the marketing
of Russian skins and furs. Eitingon himself was a Russian emigre and had
considered himself persona non grata so far as the Soviets were concerned.
Shulhof held that when the concession was about to be signed (he had all
required signatures except those of Krassin and Bogdanov) he found that
Eitingon had signed a fur concession directly with Arcos, Soviet trade repre-
sentatives in London. Shulhof sued for $1 million damages for breach of
contract, in lieu of the 10-percent commission. Just before going into court,
he raised the damage claim to $2 million. Examination of Eitingon-Schild
accounting records indicated that the concession profits for two years were
over $1,5 million. Net sales of the concession had been 87,340,178, which
after deduction of cost and 7 percent royalty, left a net profit of $1,846,759.13
The contract had run initially for one year, during which Eitingon-Schild
advanced the Soviets 50 percent of the value of the skins and furs and split
profits equally with them. During the second year, the concessionaire was
required to make more substantial advances, and his profit was limited to
15 percent of the selling price of the furs. 14 Apart from the Hammer operations,
no other case is known where large profits were made from concessions.
U.S. Consulate at Riga, Report 2550, December 8, 1924. (316-108-1277.)
U.S. Consulate at Riga, Report 927, January 17, 1923. (316-1 11-915.)
Ekonomicheskaya Zhizn, No. 102, August 25, 1925.
U.S. State Dept. Decimal Fife, 316-108-1543.
An independent accountant in later evidence held that profits were only
Si,079,973 over two years.
New York Times, various issues, November 1927.
148 Western Technology and Soviet Economic Development, 1917-1930
SIBERIAN FISH CANNERIES
In the Soviet Union the only variety of fish canned in 1923 was salmon,of which about 30 million pounds were canned annually and almost all export-ed. Ofthe twenty canneries in Siberian waters, fifteen were owned and operatedby Japanese, two by Russians, two by Americans, and one by the British.
There were also eighteen crab canneries, of which fifteen were Japanese-ownedand operated and three were Russian. The entire Siberian fishing industryin 1923 employed about 34,000 persons, of whom 29,000 were Japanese.The Japanese also leased 62 percent of the fishing stations."
AMERICAN CONSTRUCTION OF SALMON CANNERIESIN KAMCHATKA
In 1927-8, two large salmon canneries, one with five canning lines and onewith three canning lines, were built to can salmon for export. The construction
of these new canneries indicates a complete dependence on the most advancedWestern engineering achievements. Nearly all th- ::rms involved in construc-
tion came from the Pacific coast of the United Spates.
Table 8-1 CONSTRUCTION AND EQUIPMENT OFKAMCHATKA SALMON CANNERIES, 1928
Structural Equipment Supplied CompanyCoolers Isaacson Iron V'orks, SeattleSteam engines Nagle Engine ai,d Boiler WorksSteel barges Wallace Bridge tmd Structural Co.Conveyer* International B.F. Goodrich Co.toilers Pennsylvania Bc;Ier WorksDiesel engines Fairbanks MorseTransmission equipment Link Belt
Canning Equipment Supplied
Electric strapping equipment EBY Co.Lift truck* ParkerCannery equipment Seattle-Astoria Iron WorksCanning equipment Smith Canning Machine Co.
U"1"?8 Worthington Pump Co.Tinplate Bethlehem Steel and United States SteelFish cutter* Wright and SmithFillers, retorts Troyer-FoxLacquering machines SeeleyNailing machines Morgan
Source: Amtorg, op. cit.. Ill, No. 7 (1018).
U.S. Embassy at Tokyo, Report 13, January 29, 1925. (316-108-1310.)
Fishing, Hunting, and Canning Concessions 149
A floating crab cannery with a capacity of 500 48-pound cases a day was
manufactured for the U.S.S.R. by the International Packing Company in
Seattle, in ic-28.16
After a Russian fishing industry delegation had visited the United States,
the equipping of nearly all Siberian and Far Eastern canneries was given
over to American firms. 1' Similarly, an Odessa fish cannery with a capacity
of 10 million cans of fish a year was equipped with Western canning
machinery. 18
In brief, fur concessions enabled the Soviets to enter the foreign market
and, with the help of Western partners, build this into their second largest
generator of foreign exchange. The canneries, also a significant exchange
generator, were equipped completely by Western manufacturers, primarily
from the United States.
" Amtorg, op. cit,. III, No. 7 (1028).
" Amtorg, op. cit., Ill, No. 2 (1928).l' Amtorg, op. cit., Ill, No. 12 (1928).
CHAPTER NINE
Restoration of the Russian Lumber Industry
1921-30
SEVEROLES TRUST AND FOREIGN LUMBER COMPANIESRussia has extensive forestry resources—probably the finest in the world.
Under the tsars, lumber trade possibilities were not fully recognized and the
industry developed slowly in the years immediately preceding World War I.
In 1913 Russia had exported 10 million cubic meters of sawed timber; by
1929 this volume of exports had been almost regained.
There were no Soviet exports of lumber in 1919-20. In 1921 the industry
recovered slightly and exported 35,000 standards, or about 3 percent of the
average yearly prewar shipment. Reorganization in 1922-3 created four trusts:
Severoles in the northern forest area, Sapodles in the western forest area,
Dvinoles in the Dvina forest area, and Exploles in the Far East.
The trusts, however, were incapable of increasing production. Penetration
of prewar markets was impossible, owing to their inability to organize produc-
tion; shortages of equipment, tools, provisions, and labormade sizable produc-
tion impossible.
Negotiations for assistance were opened with foreign lumber companies in
1921 and resulted in the formation of four mixed companies (Type II conces-
sion agreements, with some elements of the Type I and Type III), which
took over the operation of the greater part of the northern forests in the
Severoles trust. The foreign companies were predominantly British and
German and held 49 percent of the shares, 51 percent being held by the
Soviet government. The Soviets also had the right to grant further concessions
to build sawmills and woodworking mills in the trust areas. The foreign
companies were entrusted with entire management of forests and mills and
had the obligation to supply machinery, tools, housing, and food for those
workmen supplied by the Soviet government. The poor state of the railroad
system meant that only areas close to rivers and ports could be exploited.
Restoration of the Russian Lumber Industry, 1921-30 151
For timber in the Luga and Pliussa forests, near the Estonian border, the
Soviets made an agreement with the Estonian companies Arbor and Narova.
These companies were entrusted with the operation of the sawmills, but export
arrangements were left in the hands of the Soviet government.
In the Dvina forests, the Dvinoles trust owned shares in a mixed Russo-
Latvian company organized along lines similar to those of the Severoles
agreement,
Sapodoles was dependent on Polish and Lithuanian technical assistance. 1
Table 9-1 THE SOVIET LUMBER TRUSTS ANDFOREIGN CONCESSIONS
Trust Foreign Operator of the Trust AreaSeveroles Russangloles, Ltd. (United Kingdom)Onega Russnorvegloles, Ltd. (Norway, United Kingdom)North Dvina-Vichegoda Russhollandoles, Ltd. (Holland, United Kingdom)Sapodoles Polish and Lithuanian lumber companiesDvinoles Russo-Latvian Company (Latvia)Exploles Rorio Rcngio Rumian (Japan)
Raby-Khiki Kansba (Japan)Rorio Rengto Kumai (Japan)
Non-Trust Area
Mga-Rybinsk Hqlz Industrie Aktien Gesellschaft Mologa (Germany)
Sources: 1. U.S. State Dept. Decimal File, 316-135-479.
2. Troyanovsky, Eksport, import i kontsestii soyuz S.S.S.R., p. 16.
RUSSANGLOLES, LTD.
Russangloles, Ltd. was a stock company organized under British law, andthe most important of the lumber joint-stock or mixed companies. It wasregistered on February 7, 1922 with a nominal capital of £150,000. Its objec-
tive, noted in a Memorandum of Association, was to develop timber properties,
sawmills, and transportation (including docks, railroads, roads, etc.) in order
to merchandise timber products. The company could borrow money to
achieve this objective.2 Of the six company directors, three were Russian,
two were British, and one was Latvian. The foreigners had all been in the
lumber business.
Russangloles was the operating arm of an earlier concession agreement madebetween Severoles and the London and Northern Trading Company, Ltd., onDecember 31,1921. This company had been organized in the United Kingdom
1 Timber News and Sawmill Worker (London), June 10, 1922.
* The complete Memorandum of Association is available in a dispatch, dated February16, 1922, from the American Vice Consul in London (316-135-479).
t52 Western Technology and Soviet Economic Development, 1917-1930
on September 20, 1919 with a nominal capital of £i million to operate sawmills
in the Archangel area and merchandise substantial quantities of lumber
already stored there. Four of the directors of the London and Northern
Trading Company were British and one Russian—Morduch Schalit, earlier
a timber merchant in Archangel and the former owner of the property taken
over by the company.
It was not unusual for concessions to be in operation before official announce-
ment, and this was the case with Russangloles. There is in the State Depart-
ment files an agent's report, dated August 1921, describing a stormy meeting
held at the town of Petrozavodsk, in Olonetz Province, concerning ' the question
of handing over to the English the working of woodlands and forests in the
province.' This concession was submitted to the regional committees and
commissariats to enlist local support, as local peasants objected to losing their
timberlands.*
Russangloles was given the right to exploit timber lots in the Pomozdinsky
and Kontzegorsky areas for a term of twelve years. The rental consisted of a
gross income percentage, a stumpage fee, and a separate fee for sawmills and
Chart 9-1 ACQUISITION OF FOREIGN LUMBER MARKETS:PHASE I (1922-4)
Timber Industry of the Northernand White Sea Region
Severoles Trust(U.S.S.R.)
Legend
I Foreign participation
- Organtutioruit control
Foreign technical aaaiatance
The agent reported that the 'meeting was so stormy ... it was almost necessaryto have recourse to troops but they also voted for a second discussion refusing toattack the people.' (3i6-i35-477-) It has been noted elsewhere that concessionoperations often caused local trouble (apart from the Party-inspired 'strikes'), anda case could be made that the concessions were seen locally as a means of perpetuat-ing an unwanted Bolshevik rule.
Restoration of the Russian Lumber Industry, 1921-30 153
building and transportation facilities. In addition, taxes were levied by thecentral and local governments. Export duty was payable, and the Soviet
government reserved the right to purchase any timber prepared for export. 4
Severoles was the largest of the Soviet timber trusts, covering the whole ofthe gigantic white wood resources of the Russian northland. It was this enor-mous area that was taken over, developed, and operated by Russangloies.The other two trusts in the western area, Sapadoles and Dvinoles, wereconsiderably smaller and were operated by Estonian and Latvian companiesin mixed company arrangements with the U.S.S.R.
Severoles was also the principal shareholder, along with British lumbercompanies, in the White Sea Timber Trust, Ltd. (organized in the UnitedKingdom to sell sawed lumber on the. European market), and its auxiliary
concerns: the Russian Wood Agency, Ltd. (a timber brokerage firm), the
Russ-Norwegian Navigation Company, Ltd., and the Norway- RussianNavigation Company, Ltd., which used leased Norwegian ships to transporttimber materials and products to foreign markets. 5
In each of these trusts, and in the Far East trust discussed later, timberdevelopment, construction of sawmills, transportation, and ancillary opera-tions were undertaken by foreign companies. In effect they transferred their
skills to Russian operations, and in each area created extensive and success-
ful timber operations.
Chart 9-2 ACQUISITION OF FOREIGN LUMBER MARKETS:PHASE II (AFTER 1924)
SeverolesTrust
(U.S.S.R.)
4 1
Ru«ancrlr>leJ !Ku jsian Wood E§:
I While Sea 1KUSSangloJesAgency. Lrd. all Timber Trust '
Legend
I
Foreign participation
Organizational control
' Foreign technical assistance
EuropeanLumber Market
4 Ehonomichezkaya Zhizn, No. 60, March 17, 1923.* Troyanovsky, op, cit., p. 16.
154 Western Technology and Soviet Economic Development, 1017-1930
Sales were made through a wholly Russian-owned trust. l\s the original
agreement has never been published, it is impossible to determine precisely
the part played by Western firms. Severoles acted as a broker, obtaining
sawed lumber from concessions and selling it to Western timber merchantsfor advance royalties. This operation generated scarce foreign exchange.
Lumber sales to Germany, however, did not go through the trusts. TheGerman Mologa concession output was substantial and financed on credit
by Deruwa (the German-Russian Merchandise Exchange Society) and the
Berlin branch of the Russian Bank of Commerce (the Aschberg concession).
Advance payments were made through Deruwa beginning in 1923 for all
lumber sold through the organization in Germany.*
RUSSHOLLANDOLES, LTD.(RUSSIAN-DUTCH TIMBER COMPANY)
Russhollandoles, Ltd. was a mixed company similar to Russangloles
formed in the spring of 1922 by Severoles and a Dutch timber firm, Altius
and Company, with some British financial participation. The objective wasto develop for a period of twenty years the forest resources of the North Dvinaand Vichegoda River area in the Archangel region. The area covered over
400,000 dessiatins and included property formerly belonging to the Altius
company. Half the shares were owned by the Soviets and the other half bythe Dutch and United Kingdom concessionaires. Operations began in August
1922, and in the first three months a quarter million railroad sleepers and the
stock of 2,500 standards of lumber had been exported to the United Kingdomand Holland.7
Another very large timber concession, Russnorvegloles, was concluded in
July 1923 with a group of Norwegian firms and a Dutch company (Backe andWigg, of Dramman; Backe and Wagner, Prytz and Company, and Altius
and Company). The capital stock was set at £300,000 divided equally. TheSoviets were granted the right to contribute their share in timber instead of
cash. The company was registered in the United Kingdom. The area covered
was about 2.9 million dessiatins, of which about two million was forest land
in the Onega River area. The term of agreement was twenty years, after
which all equipment and buildings became the property of the U.S.S.R.8
The capital stock was divided proportionately between Severoles and the
Dutch and Norwegian companies.
* U.S. Consulate in Konigsberg, Report, March 6, 1923. (3 1 6-1 35-501.)7 Ekoiiomicheskaya Zhisn, No. 53, March 9, 1923.' Ekonomicheskaya Zhisn, July 6, 1923 ; and U.S. Consulate in Christiania, Norway,
Report, July 19, 1923. (316-135-531)
Restoration of the Russian Lumber Industry, 1921-30 155
The three mixed companies—Russangloles, Norvegloles, and Hollandoles
—organized by Severoles advanced 15 million rubles credit in the first year
of operation, as well as providing necessary working capital and technical
assistance to get the northern timber areas back into operation.
British lumber companies also had an arrangement with Dvinoles knownas Dvinoles Export, Ltd. There was in addition an agreement between Finnish
companies and Dvinoles called Repola Wood, Ltd. Both companies exported
unsawed timber. The cutting operations were financed by the foreign partners
;
the wood was exported and cut by foreign mills.8
In brief, to restore timber cutting operations and renew contact withWesternmarkets, the Soviets used the good offices of the former owners, although a
superficial examination of the organizational structure of the Soviet trusts andthe mixed companies does not indicate the full extent of these arrangements.
EX-CHANCELLOR WIRTH AND THEMOLOGA CONCESSION
An important Type I concession was the 'Society for Economic Relations
with the East* (Gesellschaft fur Wirtschaftliche Beziehungen mit den Osten),
headed by ex-Chancellor Wirth and ex-Reichstag Deputy Haas, and including
the German firms Himmelsbach, Dortmund Association, Bop und Reiter,
Schuckart und Schuette, Voegele, and others—and signed in October 1923.
It included timber production and export, and the construction of a railroad
in Northwest Russia. By the end of 1923, the Mga-Rybinsk railroad alone
had received an investment of almost 25 million rubles.
Under the agreement, which created an operating company, Holz Industrie
A-G Mologa, one million dessiatins of forest land was granted to the concession
and S.ooo dessiatins was required to be cut annually. In addition, the conces-
sionaire built a wood sleeper-treating plant for 1,000,000 sleepers annually,
together with a pulp and chemical works, including ten plants for the chemical .:;
,
treatment of tree stumps. The Soviets received a royalty which varied betweenj
2.5 and 22 rubles per cubic sazhen marketed by the Mologa concession. The
'
railroad construction had to be completed within three years. The life of the :: -
concession was twenty-five years, with provision for an extension to thirty-five J
years upon mutual agreement. At this time properties would revert to the |-
Soviet state.".;;
'
J
The concession got under way in 1924; seven ships of timber were loaded - 1
;
in the first nine months, and the Mga-Rybinsk Railroad was started. There" :
was a report of a labor disagreement on the railroad construction in September
' Troyanovsky, toe. eit.
" U.S. Embassy in Berlin, Report 135, October 12, 1923. (316-135-545).
1 56 Western Technology and Soviet Economic Development, 1917-1930
1924, but this was settled and the threatened strike collapsed when Mologasubmitted to the demands of the workers.
By 1926 Mologa work was not going well, and Dr. Wirth visited Leningradin April to renegotiate the concession. The proposals made by Wirth werebriefly as follows:
1. That the royalty payable to the Soviet government be reduced by30 percent. (A 15 percent reduction was granted.)
2. That machinery for use in the concession enter the Soviet Union duty-free instead of at the previously agreed preferential tariff. (This wasgranted.)
3. That railroad freight charges be reduced 1050 percent of those normallypaid. (This was not granted.)
4. That permission be granted to bring in timber specialists fromGermany, (This was granted.)
5. That labor hours be increased by 20 percent. (This was not grantedby the Soviets, but it was agreed that overtime be paid at 40 percentabove the regular wage rates.)
In addition, Dr. Wirth agreed to build a cellulose factory, two additionalsawmills, and an electric power station on the Mologa River to serve the conces-sion area. At this time, between 25,000 and 32,000 men were employed by theconcession in cutting and shipping lumber to Germany. 11
In early 1927, the Mologa representatives in Moscow (Levin and Ber-dichevsky) were alleged to have bribed Soviet officials, specifically thoseemployed by Mostroi (the Moscow Construction Trust), the LyubertsyAgricultural Machinery Works (formerly the International Harvester Plantin Moscow), and officials of Grozneft. The trial opened in 1927. The Sovietofficials were sentenced to death and Levin, the Mologa representative, to five
years' imprisonment.
By mid-1927 Mologa was again in a very precarious position, and the
Germans decided to withdraw and allow the Soviets to take over.
Mologa was exceptional in that it received preferential treatment. Therenegotiation of 1926, for example, was clearly favorable to German interests.
The accusation of bribery was a characteristic move to force expulsion of theconcession as soon as production was organized and sufficient equipmentintroduced into the concession areas. 12
11 U.S. Srate Dcpt. Decimal File, 316-135-505."
£0,eman
;
U -S- Consulate at Riga, Report +516, May 19, 1927. (316-135-615.)Coleman s conclusion reads: 'Ksandrov's assurances of friendliness to the Molo-roIcs merely confirms the long known fact that this concession has been particularlyfavored by the Soviet Government who saw in it one of the concrete manifestationsof a Soviet-German rapprochement. But incidentally they also reveal that in spite of
Restoration of the Russian Lumber Industry, 1921-30 157
In an interview published in Ekonomicheskaya Zhizn, No. 85, March 22,
1927, Ksandrov, deputy chairman of the Chief Concessions Committee,
argued that the real reasons for the Mologa financial difficulties lay outside
both the concession agreement and the attitude of the U.S.S.R. toward the
agreement. He stated that the Society for Trade with the East had been formed
in Berlin in 1923 and this company formed also the Holz Industrie Aktien
Gesellschaft Mologa with an initial capital of 300,000 marks, increased in
1926 to 3 million marks. During the first year, the company erected ten frame
saws instead of the stipulated six, and a major part of the investment—about
2.35 million rubles—was made in the first year, resulting in an operating loss
of 576,000 rubles. This induced Mologa to request changes in the agreement.
Ksandrov pointed out that the changes were made; consequently the 1925-6
production was 1 million rubles, compared to 4.5 million rubles in 1924-5.
Also the concession was granted a two-year extension on the railroad construc-
tion program, a postponement of stumpage payments, and a grant of Soviet
financial support. Up to March 4, 1927, credits from Gosbank amounted to
4.5 million rubles, in addition to 420,000 rubles loaned by the Bank of Tradeand Industry, a revolving credit of 3 million rubles, and a government subsidy
of 2.2 million rubles granted in January 1926 and repayable in March 1927.
Ksandrov then concluded that 'the main reason for the financial difficulties of
the Mologoles is a lack of a solid financial basis.' The initial capital of 300,000
marks was used during the initial organizing period; the concessions then had
to borrow capital at high interest rates (15 to 16 percent in the first year, 13
percent interest in the second year, and 7 to 8 percent in the third year),
and Anglo-American capital, which was anticipated at lower rates of interest,
was not forthcoming.
Therefore, Ksandrov said
:
In view of the economic and political importance of this concession, theSoviet Government granted considerable privileges already at the conclu-sion of the agreement, that assured large profits from the concession to
German capitalists.
A rather different explanation of the decline and liquidation of the Mologa
concession is given by M. Klemmer in his 1927 report to Western Electric Co.
and is the basis for his advice that pure concessions, as distinct from technical-
assistance agreements, were not suitable objects for investment. Klemmerreported that the Mologa concession developed normally in its first years, but
the exceptionally friendly attention shown to Herr Wirth's concession, the prom-inent German interests backing the latter proved unable to overcome the reluc-tance of the international money market to make investments in the Soviet Union.... It is a striking coincidence, characteristic of the Soviet regime, that the failureof the concessionaires (sic) to obtain new investments was immediately followedby sentences in a Soviet criminal court of several officers of the Mologoles toprison for alleged bribing of employees of Soviet commercial institutions. . .
.'
:t
1
158 Western Technology and Soviet Economic Development, 1917-1930
then 'the cost of labor and all the prices went so high up' that export did not
pay; the concession then acquired permission to sell on the internal Soviet
market. This appeared profitable, as lumber prices were two to three times
higher than in the previous years. However, Soviet organizations paid only
after long delays, and, coupled with rising prices for materials and labor, this
put Mologa in another difficult financial position. Klemmer points out that
Gosbank loans were insufficient to meet commitments, and Mologa was forced
to go abtoad for financial assistance.13
It would appear, then, that credits were advanced by the U.S.S.R. to
Mologa, but that these were insufficient to offset the disadvantages of selling
on the internal market. Any foreign enterprise operating within the U.S.S.R.
and this certainly applied also to Harriman and Lena—faced insurmountable
difficulties in an environment where normal business facilities, such as credit
and terms of trade, were controlled by an arbitrary organization whose interests
were not coincident with those of the Western organization.
In conclusion, the Mologa 1925-6 balance sheet indicated a profit. Thisprofit did not satisfy the Concessions Committee, and in February 1927Ksandrov proposed reorganization of the concession:
It is obvious . . . that the fate of the concession enterprise dependsentirely on a thorough solution of the financial problem, and that thefailure of the concessionaire to solve this problem in a satisfactory mannerwill make the liquidation of the concession inevitable. 1*
Two months later, according to Ekonomicheskaya Zhizn, the Soviets
liquidated Mologa.
The German government, it was argued, had refused to continue financing
Mologa; therefore the concession was unable to establish a stable financial
basis and 'a friendly agreement was reached by both parties to liquidate the
concession.' IS It was also stated that Mologa would be reimbursed the fair
value of the concession property and a committee was appointed to appraise
its value. Operations were then transferred to the Northwestern LumberTrust (Severoles).
The only reimbursement was a payment for raw materials taken over.
In the final analysis, the reimbursement for the 20 million marks invested byGerman firms was about 5.7 million marks, or 25 percent of the investment.
Nevertheless, this was a considerably more favorable settlement than any
other concession received. The creditors received 27 perce.it of their debts;
the stockholders lost their investment. 19
13 Klemmer Report (1927), pp. 22-3 (316-60-95).11 Ekonomicheskaya Zhizn, No. 85, March «, 1927." Ekonomicheskaya Zhizn, No. 120, May 29, 1927." New York Times, September 29, 1928, p. 21, col. 2.
Restoration of the Russian Lumber Industry, l$2t-30 159
THE EXPLOLES TRUST IN THE FAR EAST
In early 1923, the Soviet government completely reorganized the timber
industry in the Far East. All timber resources east of Lake Baikal, except
those areas under concession or reserved for concessions, were grouped into
the Exploles trust. This included timber lands and wood product factories,
including sawmills and veneer plants. Plants within the trust were not
immediately nationalized ; therewere eight private sawmills and six nationalized
mills. The veneer factory was privately owned—an essential feature, as the
trust was in its early years financed by private capital from emigre Russians
in Harbin. The trust then negotiated concessions with foreign capital." An
agreement was concluded in early 1923 between the Far Eastern Revolutionary
Committee, the forerunner of the Far Eastern Soviet Government, and the
Japanese syndicate, Ookura Gumei.18 The grant was six million acres covering
seven forest districts in Maritime Province, six for a period of twenty-four
years and one for one year."
The 1925 Treaty of Friendship and Recognition between Japan and the
U.S.S.R. contained several protocols concerning concessions. Protocol 'B'
led the way to more timber concessions in the Far East. The Far Eastern
Timber Industry syndicate and Rorio Rengio Rumian were later relinquished
because of difficulties imposed by the Soviets concerning the erection of sawmill
and paper factories and the application of labor regulations.™
In 1927 a third timber concession was granted to a group of Japanese lumber
companies in the Primorsky District." The Raby-Khiki-Kansha concession
was formed to exploit some 5,400,000 acres of forest and to ship the timber to
Japan. The period of the concession was six years {until 1933), and renewal
could be discussed during the sixth year. At least 7.5 million board feet of
lumber had to be removed annually. Twenty-three dwellings were erected
for Soviet lumber inspectors; and 350,000 rubles (a special fee), a royalty,
and stumpage fees were paid after sale on the Japanese market. Sawmills and
pulp mills were erected. Foreigners were employed but could not comprise;
,
more than 25 percent of total employment except in sawmills. There was a,
requirement to employ Soviet technical students in all operations." '
Another agreement was signed in April 1927. The Rorio Rengio Kumai,j
which employed 2,000 men, consisted of 2.7 million acres near the Tartar
Straits, with an annual output of 7.5 million cubic feet.13 '
U.S. Consulate in Vladivostok, Report, March 1, 1923. (316-135-50*)
U.S. Embassy in Tokyo, Report 579, April 30, 1923. (3«6-io8-455-)
Russian Daily News (Harbin), May 13, 1923.
C. Conolly, op. at., p. 45.
Amtorg, op. cit., II, No. 7 (April t, 1927), 1.
U.S. Embassy in Tokyo, Report 399, January "'. '9*7- (3i6->35"435)
Amtorg, op. cit., IV, No. 8 (April 15, 1929)-
; 3
1
160 Western Technology and Soviet Economic Development, lcjij-1930
Later in 1927 an effort was made to attract foreign timber concessionaires
on a much larger scale. It was announced, for example, that large unexploitcd
timber regions of the Far East, extending for some 62,000,000 acres, had been
divided into fifty-one blocks and that concessions could be obtained for these
regions.2*
ACTIVITIES AFTER THE DEPARTURE OF THECONCESSIONS
Exit of Western companies and their concession operations was followed
by the operation of the same northern lumber areas by prison labor: specifically
political prisoners and kulaki under the management control of the OGPU.Although this proposition will not be examined in depth, there is considerable
evidence that those lumber stands developed by the concessions (Dvina,
Onega, and Komi in the northern forest areas) were precisely those areas
turned over to OGPU prison camp operations. The loading of foreign ships
with the sawed lumber was also undertaken by forced labor. 25
New sawmills constructed were, however, still built by Western companiesand with Western equipment after the departure of the concessionaires. TheDubrovsk sawmill, with a capacity of 5 million cubic feet of lumber a year,
was built by the Bolinder Company in 1928 and 'largely' utilized Swedish
equipment. 26 Another large sawmill, built in 1928 at Volinkinsky, near
Leningrad, with a capacity of 2.5 million cubic feet per year, utilized equip-
ment from both the United States and Sweden. 27
The technical backwardness of the Russian lumber-processing industry,
even as late as 1929, is suggested by the admission by Lobov that only 1 percent
of Russian lumber was kiln- dried, compared to more than 60 percent in the
United States.28
PULP AND PAPER MILLSAll pulp and paper mill technology was imported from Western countries.
The Kondopozh (Lake Onega) paper mill, built in 1928, with an annualcapacity of 25,000 tons of newsprint, had two turbo-generators built in
Sweden and a 3,000 kilowatt steam plant and paper-making machine from
" Amtorg, op. cit., II, No. 20-1 (November 1, 1927), 10.15 A. Pirn and E. Batcson, Report on Russian Timber Camps (London: Benn, 1931).
Swianiewicz, who had personal experience of the Soviet prison system, makes thepoint that lumber had to take the place of grain in generation of foreign exchange.In 1920-30 an acute manpower shortage developed; this led to OGPU operationof the northern forest areas. (S. Swianiewicz, Forced Labour and Economic Develop-merit, London: Oxford University Press, kj6j, pp. 113-4.)
** Amtorg, op. cit., Ill, No. 2 (1928), 23." Amtorg, op. cit., Ill, No. 3 (1928), 41." Amtorg, op. cit., IV, No. 4 (1929), 77.
Restoration of the Russian Lumber Industry, xgsi-jo 161
Germany. Nine Soviet paper technicians studied paper-making in Canada
before returning to operate the plant.2*
In 1926-7 the total Russian output of paper was 267,000 tons.A single plant,
the Balakhna paper mill on the Volga River in Nijnhi-Novgorod Province,
with a capacity of 105,000 tons, raised this overall capacity in 1928-31 by just
under 50 percent. The Balakhna mill had three paper-making units: one
bought in Germany and two in the United States. The larger of the two United
States units had a bed width of 234 inches and, at the time of installation, was
the fastest American sectional-drive paper machine in the world. Its finishing
delivery speed was 1,200 feet per minute. The complete electrical installation
for the mill was supplied by General Electric, whose engineers supervised
installation and initial mill operations. The final unit was not completed before
193T.30
TECHNICAL ASSISTANCE IN THE LUMBER INDUSTRY
The mixed trading company agreements of 1923-4 contained technical-
assistance clauses. The British, Norwegian, German, and Dutch lumber
companies were required to cut and transport the lumber. In undertaking
these operations, they entered the timber areas of the U.S.S.R. to organize
production and shipping. There is little doubt that these concessions granted
in the timber and sawmill industry between 1922-27 worked closely with the
Soviet government on the technical sphere and furnished considerable capital
for lumber operations.31
In every case, operations ultimately proved unprofitable, and by 1928 the
last foreign operations in the lumber industry had closed, except for the
Japanese concessions in the Far East. The technical-assistance components,
however, persisted. Harry Ferguson, Ltd., provided technical assistance under
the Russangloles, Ltd. agreement, and his contract for assistance was still in
operation in 1929, several years after the ejection of the British concession-
aires.82
After closing the concessions, the Soviets purchased technical assistance in
the form of Type III agreements. For example, in September 1928 the
Stebbins Engineering and Manufacturing Company, a firm of architects and
engineers of Watertown, New York, was approached by Amtorg with a
request for a consultant to make a report on Soviet pulp operations.83
" Amtorg, op. tit., Ill, No. 8 (1928), 195.
" Monogram, November 1943.
« See, for example, the United States Consulate Report from Hehtngfors dated
December 24, 19*9. (316-1 35-663.)
" U.S. State Dept. Decimal File, 31 6-1 31-641.
" The Amtorg letter reads in part, "We wish your representative to come to the
U.S.S.R. in a consultant capacity on organization and production problems."
1 62 Western Technology and Soviet Economic Development 1917-1930
In 1929 the British-European Timber Company, a United Kingdom firm,
sent a group of engineers to forested areas in Mezen, Pechora, and Siberia."
SOVIET LUMBER TRADE FROM 1921 TO 1928
As a result of these transfers of foreign skills and technology, Soviet exports
of sawed lumber grew from a mere 48,000 standards in 1921 to 569,000
standards in 1928—an increase greater than tenfoM However, 569,000
standards was still less than one-half of 1913 Russian e^ort of sawed lumber.
The destination of these exports was significantly one; ted to the operation
of the mixed trading companies. In 1913 about half of sawed lumber exports
went to the United Kingdom. The most important of the Type II agreements
(made in the 1920s) was made with United Kingdom lumber merchants and
lumber importers. In 1928 some 389,000 standards w-nt to the United
Kingdom—about 60 percent of the amount exported tc Britain in 1913.
However, the total 1928 Soviet lumber exports were only 46.7 percent of
those in 1913. In other words, the relative proportion of lumber going to the
United Kingdom was considerably greater in 1928. Holland and Germany,
who possessed concession arrangements in lumber, show a similar increased
importance as importers of Soviet lumber, whereas France and Belgium, with
no concession arrangements, took an insignificant proportion of their 1913
imports of Russian lumber (13.9 and 20.1 percent, respectively).
Table 9-2 EXPORTS OF SAWED LUMBER FROM THE U.S.S.R.,
1913-28, BY DESTINATION
Destination
Restoration of the Russian Lumber Industry, 1921-30 163
Type II concessions, using the maiket knowledge and skills of the private
concessionaires. Part of the balance was shipped through the German Mologa
concession. Beams, alder veneer, and pit props also show a strong orientation
toward the United Kingdom market.
Companies underwriting timber contracts with theU.S.S.R. had complaints
about Soviet trading practices, as the Soviets entered the market on their own
account after 1924-5. The Soviets had a practice of appearing in the lumber
market at the last minute and underselling not only Swedish and Finnish
timber but also their own earlier contracts, and thus 'disturbing' the market,
from the veiwpoint of the British trade. Twenty leading United Kingdom
timber merchants formed a coalition on 1929 and made arrangements to
purchase all Russian timber in specific grades forthcoming in a particular year
at agreed prices.8*
More than 90 percent of all Soviet timber exports during the 1920s was
going to countries with mixed company arrangements. In brief, all Soviet
timber was produced and most marketed with foreign capital and technical
assistance.
" U.S. Embassy in London, Report 3342, February 7, 1929. (316-135-647.)
CHAPTER TEN
'Sovietization' of the Tsarist Machine-Building
Industry 1
THE LENINGRAD MACHINE-BUILDING TRUST(LENMASHSTROI)
There was a well-established general and precision machine-building industry
in Russia before the Revolution. This was located primarily in Petrograd
and Moscow and included the locomotive construction plants in the Ukraine.
After the Revolution, the industry went through a chaotic transformation.
Table 10-1 PLANTS COMPRISING THE LENINGRADMACHINE-BUILDING TRUST IN 1923
Prerevolutionary Name
'Sovittizatiori of the Tsarist Machint-Building Industry 165
In Petrograd, half the machine-building plants were closed in 1923, and those
open were working on an intermittent part-time basis and were later trustified.'
The Putilovets in Petrograd employed more than 6,000 before the Revolu-
tion. In 1920, renamed the Krasnyi Putilovets, the works employed t.ooo
but produced almost nothing. Continual strife between the technical executive
staff and the workmen's committee was aggravated by the fact that unskilled
workers received higher pay and more food than skilled technicians and
managers. The plant remained more or less in this condition through the
early 1920s. In 1929 the Putilovets arranged a technical-assistance contract
with Frank Smith Co., Inc., of the United States. 3 The Ford production chief,
Sorensen, also visited the plant in 1929 and, when asked by a Soviet official
what he thought of it, suggested they pu t a few sticks of dynamite in the middle
of the shop floor and blow it out of its misery. 4
Other operating plants were in little better condition. The Nobel Gas
Engine Works {renamed Russfcy Diesel) was well equipped in 1921, but
produced only a few repair jobs. The Arthur Koppel works, formerly a
producer of fire escapes and light structural steel work for the city of Petrograd,
was completely at a standstill. Keeley reported that they were trying to build
a couple of peat excavators. 6 The Lessner, renamed the Karl Marx, reopened
with 100 skilled workers imported from Finland in late 1921 or early 1922.'
Lenmashstroi concluded a technical-assistance agreement with the Metro-
politan Vickers Company of the United Kingdom in March 1927. For a
period of five years the trust used the patents and manufacturing rights for
Vickers turbines, paying to the company a royalty dependent on the number
of turbines produced. Russian engineers were sent to the Vickers' plants in
England for study, and a large crew of English engineers went to the trust's
plants in the Soviet Union. 7 Vickers' assistance was concentrated in the old
Petrograd Metal Works, renamed the Stalin. The assistance concerned turbine
design and construction problems. The Stalin plant was the only producer of
turbines until 1930; they were all produced with Vickers' assistance and
' This information is based on report by Royal Keeley in U.S. State Dept DecimalFile, 316—107-99/100. Keeley, an American, was in Russia from September 1919to August 1921. He investigated, at the invitation of Lomonosov, industrial andeconomic conditions in various plants in Moscow and Petrograd. These visit* receiv-
ed support from Lenin and Rykov. Keeley reported personally to Lenin on several
occasions. He was imprisoned from May 1920 to August igsi 'because he knew too
much about Russian conditions.' (U.S. State Dept., Division of Russian Affairs,
memorandum to Secretary of State, October 18, 1921. 316—107-106/12.)
U.S. State Dept. Decimal File, 316-131-642.' Sorensen, op. cit., p. 202.1 Keeley, op. cit.
* Makhovik (Petrograd), December 13, 19x1.7 Torgovo-Promyshlennaya Gazeta, No. 60, March 15, 1927; and Allan Monkhouse,
Moscow 1911*1933 (Boston: Little Brown, 1934), pp. 185-6.
166 Western Technology and Soviet Economic Development, igiy-ig^o
comprised the total Soviet output. Other plants in the trust were reestablished
with German technical assistance.
MOSMASH AND GERMAN TECHNICAL ASSISTANCE
The tsarist-era machine-building plants in Moscow were grouped after
the Revolution into Mosmash. Their names were changed and most were
restarted with German technical assistance.
Table 10-2 PLANTS COMPRISING MOSMASH IN 1923
Prerevottttionary Name Soviet Name
Bary Engineers ParostroiBromley Brothers Krasnyi ProletariatGratchcff Krasnya PresniaSinger Goujon Serp i molotDanhauer and Kaiser KotloapparatDobroff and Nabholz Melnitchno-Tkatskoie OborudovanieJaquot PressList-Butirsky BoretzList-Sofisky HydrophilKramer Krasnyi Stampovstchtk
Source: Anmiaire, op. cit., p. 84 rear.
The Bromley Brothers Works in Moscow kept running throughout the
Revolution under its English manager and was nationalized in 191 8. This wasone of the better-organized plants in the Soviet Union, but it ran into the
same difficulties as others, and by 1921 its production was negligible.* It wasrenamed the Red Proletariat and brought into the trust. Moscow's oldest andlargest semi-fabricated metal materials plant was the Singer Goujon. It
produced structural shapes, steel sheet and plate, wire, rope, and similar
products. The plant was nationalized in 1918 and a former English foreman
made manager. In 1920 the plant was at a complete standstill; official records
indicated an output of only 2 percent of 1913. After being renamed the Serp i
molot and absorbed into the trust, the works made a good recovery with
German technical assistance. By 1923 the plant was producing 80 percent
(by weight) of the Mosmash output. 8 The trust was also interested in producing
steam and diesel engines, turbines, and pumps, as well as fabricated metal-
work. 10 A technical-assistance agreement was made in 1926 with Gasmotoren-
Fabrik Deutz A-G, of Germany, which gave the trust the right to construct
11 Kcelcy, op. cit.,
« Ibid.
" Anmiaire, rear p. 84.
'Soviefixation' of the Tsarist Machine~BuMin$ Industry 167
and assemble all types of Deutz motors (with and without compressors),
stationary engines, and main and secondary engines for river and marine
craft. All patents, designs, experimental data, and other information generated
in the German plants passed from Deutz A-G to Mosmash. There was the
usual exchange of engineers, Deutz engineers going to the plants of the trust
and trust engineers going to Deutz plants in Germany for training. Royalties
were paid on all production.11 Further, there was probably an implied leci-
procity clause of some type in the agreement. In mid- 1927, the Soviets ordered
two freight-passenger ships from the Janssen and Schnilinsky A-G shipyards
of Hamburg and specified Deutz diesel engines."
GOMZA AND THE WESTINGHOUSE BRAKE WORKS
Gomza was the largest of the machine-building trusts, and in 1924 consisted
of eighteen units, including iron ore mines, smelting plants, and works
producing machinery, tools, locomotives, wagons, and agricultural machinery.
In 1925, the Westinghouse Air Brake Works was nationalized and added to
this trust. Of the eighteen units, only fourteen were operating. Of the remain-
ing units, two were in a state of 'technical preservation' and two in liquidation.
The trust was notoriously inefficient, accumulating a loss of 3.7 million rubles
in 1932-3, 7 million rubles in 1923-4 and over 4 million rubles in 1924-5
and in 1925-6.
The Westinghouse Air Brake plant in Moscow (moved by the company to
Yaroslavl in the early 1920s) was not nationalized until after the Soviets had
assured themselves of its facilities and were confident of having enough skilled
engineers and workers available. It is noteworthy that any activities connected
with transportation—and particularly railroads—were handled with great
care by the Soviets.
There is little question that Westinghouse also played a cautious game in
an attempt to evade the nationalization decree. The manager of the Yaroslavl
plant, when interviewed in 1922 by officials of the U.S. State Department,
reported that relations between management and labor were excellent, that
the company did not import raw materials, that the Soviet government owed
the company half a million rubles, and that he felt the time was ripe for a
further investment by the parent company. He claimed that profits could be
transferred out of the Soviet Union with only a 3-percent penalty, while the
fee for imported funds was only 10 percent. Westinghouse did not bite.18
Torgovo-Promyshlennayo Gascta, No. 879, December 3, 1926.
U.S. St«e Dept. Decimal File, 316-130-605.
U.S. State Dept. Decimal File, 316-139-31.
1 68 Western Technology and Soviet Economic Development, igiy~ig30
During the Civil War and famine, the company supplied its Russian workers
with flour and clothing. Consequently, the Party had trouble stirring up
Westinghouse workers when the time came to demand nationalization. The
end was foreshadowed in a Pravda article on January 1 8, 1924, under the title,
'With the Lackeys of American Capital.' The article complained about condi-
tions in the Westinghouse plant. The company was accused of using the
Taylor system to carry out twelve months' work in six months and bribing
the factory committee by supplying food and clothing. The essence of the
complaint was:
... at the present time they are paying only 25 percent more than other
factories. The cells have now opened the eyes of the workmen. At present
the workers not only distrust but even hate the administration.
This was followed by a demand that the secretary of the cell should be present
at collective bargaining meetings—presumably to 'protect' the interests of the
workers.14 The company was nationalized in 1925 and the works absorbed into
Gomza.15
GOMZA AND THE GERMAN AND SWEDISHLOCOMOTIVE PROGRAM
In August 1920, Professor Lomonosov, formerly director of traffic on the
tsarist railroads and in 1920 director of all railways in the Soviet Union, went
to Germany and later to Sweden to negotiate for railway supplies, the Soviets'
most urgent requirement.16
The locomotive stock at this time was about 16,000 of which only about
6,000 were able to operate at all. The position was so critical that workers were
released from the Red Army transportation corps to help repair locomotives.17
The Sormovo locomotive works was able to make capital repairs to thirty-six
locomotives in the last half of 1920 but only to nine in the first half of 1921.
Sormovo repaired 246 cars in the second half of 1920 but only 3 1 in the first half
of 192 1.1B The Tver wagon construction works made 100 new freight trucks
and repaired 603 in the last half of 1920, and then closed down. At this time
more than 10,000 locomotives and many more wagons were awaiting or under-
going repair. 10 In August 1921, of a listed rolling stock of 437,152 cars, only
20,000 were in first-class condition, and fewer than 200,000 were able to run
» The complaint was phrased, 'The Americans have played a dirty game with us but
they are called a cultured and liberal nation.' (TVwrf, No. +2, February 24, 1923.)
15 Pravda (Moscow), No. 15, January 18, 1924.
16 U.S. State Dept. Decimal File, 316-163-721.
" U.S. State Dept. Decimal File, 316-163-724-
" In 1890 the Sormovo Works was making complex rolling-mill equipment and was
able to machine one-piece 20-ton forging!,. Sec Foss Special Collection, Hoover
Institution Library.
" U.S. State Dept. Decimal File, 316-163-840.
'Sovietization' of the Tsarist Machine-Building Industry 169
at all.** The equipment and locomotive problem was solved by purchasing
European and American locomotives; sending defective locomotives to Latvia,
Estonia, and Berlin for repair; and importing German technicians and railway
materials for wagon repair.
In July 1920 the U.S.S.R. made an agreement with the Nyquist and HolmA/B locomotive construction company at Trollhatten in Southern Sweden.The agreement has been variously described. The Stockholm Consulate, in
an interview with C. W. Beckmann, chief engineer at the plant, reported
that Gunnar W. Andersson had purchased controlling interest for Kr 7million. In addition, he had a contract from the Soviets for 1,000 locomotives.
Andersson, who knew nothing about locomotives, became president anddirector general ; Lomonosov assumed technical direction."
The Berlin Embassy reported the Soviets had advanced a loan of $1.5
million to the company to extend the locomotive construction plant at
Trollhatten.*4 The Soviets themselves stated the arrangement was no morethan a credit. In view of the special 'arm's length' relationship with Andersson,
the latter explanation is unlikely.23 What is quite clear is that the Soviets
financed locomotive construction in Sweden at a time when they had five
locomotive construction plants in 'technical preservation' one with completely
new equipment,« and notwithstanding a precarious financial and foreign
exchange position. Later the following month about 1,500 'high-grade'
locomotives were purchased from Germany, delivery beginning early 1922.**
These were of basic American decapod design adapted to Russian conditions.2'
The imported Swedish and German locomotives were sent to the Putilovets
in Petrograd for assembly under the supervision of Waldemar Sommermeycr,representing the German builders, and Karl Kainer, representing Nyquistand Holm. The status of locomotives in January 25, 1922 was as follows:
Locomotives On Order Delivered AssembledFrom Germany 1,350 220From Sweden 600 12From United States 250 24'•}
12 > S3
Total 2,200 256 53
Source: U.S. State Dept. Decimal File, 316-163-890.• These were probably Baldwin Locomotive units. The Russian Ambassador inWashington reported on September 1 920 that Baldwin Locomotive had sold 50 locomo-tives 'indirectly' to the Soviet Union with payment through a Spanish account (316-163-836).
™ Ekonomicheskaya Zhizn, No. 210, September 21, 1921." U.S. State Dept. Decimal File, 3 16- 163-731." U.S. Embassy in Berlin, Report 53, December 8, 1021. (316-130-1174.)a See page 269,H See page 269." U.S. State Dept. Decimal File, 316-163-739." Trud, No. io+. May 14, 1922,
u
170 Western Technology and Soviet Economic Development, igij-igjo
Locomotives were assembled at Putilovets as a temporary measure, and
some 2,000 extra workers were engaged under supervision of Swedish and
German engineers. Between November 1921 and January 1922 about 53locomotives were assembled and sent to Nikolaev and Northern Railways.
During January, twelve were returned as defective due to 'systematic damage*
by railway workers. As the locomotives were driven under the supervision of
German instructors, 160 of whom had been sent from Germany, this was
presumably sabotage.27
In addition to outright purchase of locomotives in Sweden, Germany, and
the United States, the Soviet Union contracted for large-scale repairs in
Estonia and Germany. The first Estonian contract was with locomotive-
building plants in Reval for repair of 2,000 'sick' locomotives. Payment under
this and similar contracts was in damaged locomotives; i.e., a percentage of
the delivered units was retained by the Estonian firms as payment in kind.**
The second Estonian contract, valued at over $2 million, was signed on Decem-ber 21, 1 92 1 with the Dvigatel plant (representing a group of Estonian and
English builders), the Russo-Baltic works, the Peter shipyard, the Fr. Krull,
and the Ilmarine, all in Reval. This contract covered an initial 200 freight
units of the 0-8-0 type and extended later to 1,000. The repairs were classified
into three categories, and a fixed price was paid for each class of repairs with
additions for missing parts according to a fixed scale. Cash advances were
made and 40 percent paid on delivery of the repaired locomotives at the
Russian-Estonian frontier. Payment was in American dollars. All steel and
parts, except copper fire-boxes, were the subject of a separate agreement
between the Estonian companies and Krupp of Germany. The latter also
arranged financing of the program with the Deutsche Bank. The British
Vickers-Armstrong Company participated in the repair contract by leasing the
Russo- Baltic works through a specially formed subsidiary, the Anglo-Baltic
Shipbuilding and Engineering Company. The major portion of the order
was divided between Anglo-Baltic, the Dvigatel, and the Peter shipyard.
The plants were kept busy for about one-and-a-half to two years.29
The Soviet Union made numerous attempts to acquire American locomo-
tives. On April 22, 1919, Martens, operating as the 'representative of the
U.S.S.R. in the United States,' claimed 200 locomotives ordered by the
Kerensky government as the property of the Soviet Union. His letter was left
unanswered.30 The next recorded attempt was in February 1920, when Mayor
" U.S. Statu Dept. Decimal File, 316-163-836.» U.S. State Dcpt. Decimal File, 316-163-856." U.S. State Dept. Decimal File, 31 6-1 63-881 el. seg.
30 U.S. State Dept. Decimal File, 316-163-453.
'Sovietization' of the Tsarist Machine-Building Industry iji
Friedenberg (of Riga), who had just returned from Moscow, announced that
he had been commissioned to enter into negotiations for purchase of 600
American locomotives and 'large quantities' of machines, tools, and rails.
Payment was proposed in gold and platinum.31 Ten days later the Riga Con-sulate reported that Friedenberg was going to attempt to order directly fromBaldwin Locomotive or American Locomotive for delivery to Latvia, and thenturn the locomotives over to the U.S.S.R." It was reported via Finland twomonths later that representatives of 'American firms' had accepted a Soviet
order for 400 locomotives at Reval, Estonia.*3 Purchase of American locomo-tives was also attempted through Latvia.3*
In the main, however, the bulk of the locomotives purchased wereeither Swedish or German and were classified 'Eg' (German-built) or 'Esh'
(Swedish-built). The basic design was the Vladikavkaz Railroad o-io-o,
introduced in 1912 and built after 1936 at all five Russian locomotive construc-
tion works. The only difference was a larger superheater in front of the engine.
More powerful variants were introduced in the 1930s, but this basic type wasstill being produced after World War II and is still the basic steam freight-
hauler in use on Soviet railroads today. For passenger locomotives the Soviets
inherited a mixed group of prc-revolutionary makes and selected the Vladi-
kavkaz Railroad type S 2-6-2, known as the *Sv', built originally for use on
Table 10-3 LOCOMOTIVE CONSTRUCTION BY GOMZAWORKS, 1921-3
Prerevolutionary Name Soviet Name Position, ign-3
Sormovo Krasnoye Sormovo Closed, then opened with Germantechnical assistance
Kolomna Kolomna Partly open, for wagon repairBryansk Profintern Closed 1922-3Hartmann (Lugansk) Lugansk Closed 1922-3Kharkov Kharkov Locomotive Closed 1922-3
Source: German Foreign Ministry Archives, ^20-4249-1,092272.
U.S. State Dept. Decimal File, 316-163-678.U.S. State Dept. Decimal File, 316-163-680. The State Dept. reply (marked 'notsent ) suggested that the Friedenberg matter be allowed to develop along these lines.It was drafted by Poole of Russian Affairs but killed by the Second AssistantSecretary.
U.S. State Dept, Decimal File, 316-163-703. An intercepted radio message toMartens in the U.S. directed him to purchase 100 locomotives directly fromBaldwin Locomotive.
U.S. State Dept. Decimal File, 316-163-705.
172 Western Technology and Soviet Economic Development, 19IJ-1930
the Warsaw-Vienna railroad. This locomotive was redesigned to carry a larger
firebox and superheater and was put into production after 1925 with the
designation 'Su'. Several hundred were built in this basic design."
The decline in repairs continued throughout 1921 and 1922, and the
position was stabilized only by this flow of new locomotives from abroad.
This decline continued; Russian locomotive shops were idle although in
good mechanical condition. They had lost many skilled workers but had
enough to turn out some new locomotives. The orders, however, were going
abroad, not even the newly equipped Murom plant outside Moscow could get
locomotive orders. Pressure built up to halt the export of 'sick' locomotives
to Estonia for repairs and place orders in the idle Russian plants. In June
1922, Glavmetal refused to sanction a shipment of 200 'sick' locomotives to
Estonia, The trade union organizations added to the pressure by accusing
Lomonosov of selling out the proletariat to Estonian capitalists.86 As a result
of this pressure, deliveries under both the Estonian and German contracts
slowed after 1922, and the idle Russian plants were restarted, with Germanassistance, by about 1924-5.
Table 10-4
'Sovietutation' of the Tsarist Machitu-BuiUing Industry 173
prices six times greater than prewar for Gomza products, and smaller articles
made by the trust were being sold on the open market at half price in orderto sell at all. Consequently, it is not surprizing that the trust was coveringonly 7 percent of direct costs (i.e. , it was making no contribution to fixed costs).
The statement was made that, ' ... we cannot close down as this wouldthrow 80,000 men out of employment and the railways would suffer.'" Theproblem, ofcourse, was lack of orders. While German, Swedish, and Americanlocomotives were being imported in quantity, Gomza was largely idle.On the other hand, there was ample evidence that the skills to manufacturelocomotives were lacking. The engineers had fled, and those locomotives thatwere being repaired broke down after a few days back in service. 3*
THE BALDWIN LOCOMOTIVE TECHNICAL-ASSISTANCEAGREEMENT OF 1929"
The Baldwin Locomotive Works Company, with a group of fifteen manu-facturers of input parts and supplies for locomotives, made a sales-cum-technical agreement with the Soviet Union on April 12, 1929. Baldwin agreedto sell its products and those of the allied companies to Amtorg on a revolvingcredit basis. A total of $5 million was made available {$2 million withineighteen months of date of signature). Separate technical-assistance agreements(not available from the State Department files) were also signed to assist
Gomza in the development of locomotive production. The credit terms were:
20 percent payable 24 months from date of dock receipt20 percent payable 36 months from date of dock receipt20 percent payable 48 months from date of dock receipt20 percent payable 60 months from date of dock receipt.'10
These advances carried a 6-percent interest rate. Baldwin and the associatedcompanies agreed to send their engineers into the Soviet Union for locomotiveerection and engineering work, and, as the contract reads:
' *i £
grees t0 receive at its works and ass 'st ^ placing at the works ofsuch firms whose products will be supplied under this agreement, andwill also assist in placing in shops and on railroads in the United States areasonable number of workers, foremen and engineers sent from the
t!1 la Per'od °f t'me provided in each case separately, so as to
enable these workers, foremen and engineers to get fully acquainted withAmerican practice.41
17 U.S. State Dept. Decimal File, 316-107-1044." U.S. State Dept. Decimal File, 316-163.
A copy of the agreement is in the U.S. State Dept. Decimal File, 316-163-1301.Clause o of the agreement.
Associated companies were American Steel Foundries, Athey Truss Wheel, Brill<-ar Company, Electric Controller and Manufacturing, Fairmont Railway Motors,
174 Astern Technology and Soviet Economic Development, xyxy-xyjo
The agreement was signed by A. A. Zakoshansky for the Soviet Union and
Charles M. Muchnic, Vice President for the Baldwin Locomotive Works
Company.
GENERAL ELECTRIC DIESEL-ELECTRIC'SURAM' LOCOMOTIVE
Russia had been a pioneer in diese! traction. Prerevolutionary shipbuilding
yards and locomotive construction plants in Petrograd and Kharkov had
undertaken a great deal of innovatory work in the direction of dicsel-electric
and diesel-mechanical propulsion. There were dicsel electric ships in tsarist
times built in Russian shipyards. The Tashkent railroad had been an early
innovator in diesel traction and had actually built a gas turbine locomotive.14
This promising start came to a complete halt in the 1920s. Efforts to continue
diesel locomotive construction were halting and unsuccessful. They culminated
in the import of the General-Electric-designed 'Suram' locomotive, namedafter the mountain pass in the Caucasus, in 1932.
In 1922 an experimental power plant was built, using the Tashkent railway
turbine and a compressor system designed and built by Armstrong-Whitworth
in the United Kingdom. The claims were great but nothing more was heard
of it.43 Two years later a locomotive design competition was announced for a
i6-ton, 930-mile-radius locomotive with a tractive effort of 26,000 pounds at
9 m.p.h. The sole entrant was a design by Professor Gakkel, which was
subsequently built at the Putilovets and Baltic plants under German super-
vision. The locomotive was powered by a Vickers 1,030 h.p. diesel engine
reclaimed from a submarine, coupled with some Italian generators. This was
the Lenin Memorial Locomotive, presently preserved in Moscow. Westwood
says it was withdrawn from service in 1927 after running only 25,000 miles
and spending much of its active life out of service. It spent many years as a
mobile generator.41
Russian designs were not forthcoming; it was obvious that the designers
had fled with the Revolution. Prototype locomotives were then ordered in
Western countries. These used both diescl-electric and dicsel-mechanical
systems. The most successful under Russian conditions was a Krupp 1-E-1
diesel electric, and in 1927 a trial order was placed with Krupp for an improved
Locomotive Terminal Improvement, Southwark Foundry and Machine, StandardSteel Car, Superheater Company, Sunbeam Electric, Westinghouse Air Brake(expropriated without compensation in 1923). Wilson Welder, G. D. Whitcomb,Locomotive Firebox, and Nathan Manufacturing.
Westwood, op. cit., p. 67.
Ibid.
Ibid.
'Sovietization' of the Tsarist Machitu-Buildtng Industry 175
version of this prototype with a Mann-type four-stroke six-cylinder engine
which enabled the Soviets to make use of their technical-assistance agreement
with the Mann company. Brown-Boveri traction engines of 140-kw hourly
rating were also ordered. These prototypes were not built in the Sonet Union,
however, until 1932, when production started at Kolomna. The design produc-
ed was identical to the German E-e 15. This decision ended an unsuccessful
prototype development program which had been continued for some years at
the Kolomensky works. It had produced some prototypes for secondary
lines in the late 1920s, but Westwood indicates these had not been successful,
owing to frequent burnouts." Future locomotive construction was based on
foreign design and particularly on the General Electric design for the 'Suram'
model; indeed some elements of the current (1966) VL 23 design are the
same as those in the original 'Suram' delivered about thirty-four years ago.
Diesel-electric traction is an area where the Soviets have shown neither
innovatory nor construction ability.4*
Apart from purchasing prototypes, the Soviets induced Western companies
to undertake the solution of specific mechanical problems. In the developmentof industrial locomotives using gasoline engines, the technical problems were
solved by an American company hoping to sell such locomotives to the
U.S.S.R. In 1926-7 the Koehring Company sold several four-cylinder indus-
trial locomotives to the Soviet Union and in the following year received an
inquiry about six-cylinder units. The company pointed out that ordinary
Russian grade kerosene would not be sufficiently volatile, although the 'export'
grade produced by the Standard Oil refinery at Batum would be suitable.
With the assistance of the Department of Commerce, which canvassed
American oil companies for Koehring, data was developed on the characteris-
tics of Russian kerosenes, and engineers from 'one of Koehring subsidiary
companies' developed an engine suitable for efficient operation on this grade
of fuel.*7
TECHNICAL ASSISTANCE TO GOMZA REFRIGERATIONEQUIPMENT PLANTS
Gomza's efforts in refrigerator and cold-storage plant construction received
technical assistance from German and United Kingdom firms from about 1926until well into the 1930s. In late 1926 an agreement was signed betweenGomza and A. Borsig G.m.b.H., of Berlin, for assistance in construction of
refrigerators utilizing the Borsig system. The German firm prepared construc-
" Ibid,, pp. 67-9.*• Ibid.
*' Records of the U.S. Bureau of Foreign and Domestic Commerce, File 31a (1927).
176 Western Technology and Soviet Economic Dwhpment, i^iy-1^30
tion designs and working plans for the trust, utili2*ng its own patents and
experience. There was an exchange of refrigeration engineers between Gomzaand Borsig plants. Further such technical-assistance contracts were signed with
Maschinenfabrik Augsburg-Numburg A-G and L. A. Reidinger A-G, also
of Augsburg, for construction of cold-storage facilities18
Dairy produce agreements with the Union Cold Storage Company, Ltd,
(of the United Kingdom), allowed the company to establish cold-storage
facilities in the U.S.S.R. to handle food products being exported under the
trading agreement.1"
GENERAL TECHNICAL ASSISTANCE FOR ORGAMETALThe first overall technical guidance for the reconstruction of the heavy-
machine industry came under a three-year agreement signed in later 1926between Orgametal (the heavy industry syndicate) and the German company,Verein Deutscher Wcrkzeugmaschinen Fabriken Ausfuhr Gemeinschaft(known as Faudewag). This company set up a joint technical bureau in Berlin
to design new plants and re-equip the tsarist heavy-machine industry. Thecompany supplied engineers, technicians, and skilled workers; superintended
construction and reconstruction; and supplied machinery, raw materials,
working supplies, and design services. 60 The agreement was renewed in 1929,and Faudewag added more functions. It was still in force in the early 1930$."
The Faudewag project, whicli supervised all Orgametal work, was followed
by an extensive technical-assistance agreement with the Frank Chase Company,of the United States." The most significant agreement was made at the end of
the decade, in connection with the large-scale construction projected underthe first Five-Year Plan. Almost all major projects under the Plan were design-
ed by American companies.53 Albert Kahn Company of Detroit had the basic
task of supplying technical advice to the Building Committee of Vesenkha, in
addition to contracts with Glavmashstroi for construction of new machine-building plants and with Traktorstroi in Stalingrad for construction of tractor
Vncshtorgizdnt, op. cit., p. 227.
See chap. 7.
Torgovo-Promyshleniiaya Gazeta, No. 279, December 3, 1926.
Vncshtorgizdat, op. cit., p. 228. This expanded Faudewag agreement supervisedall Orgametal projects. The company office in Berlin replaced the Russian-operatedand staffed Buiro Inostrannoi Nauki i Tekhniki (BINT), organized in Berlin in1020 to collect foreign technical data. BINT employed 100 Russians in 1921 but thestaff was reduced to 5 by Ipatieff, who considered the cost too great in light of thereturns. (Ipatieff, op. cit., p. 330.)
U.S. State Dept. Decimal File, 316-131-642.
This is covered in detail in Vol. II.
'Sovietisation' of the Tsarist Machine-Building Industry 177
plants." The Five-Year Plan as a concept is almost completely a myth of thepropaganda mills. First, there were no hard and fast dates for beginning andending specific projects in sequence. Each contract had its own time sequenceand was not always well integrated with other construction projects. A set ofdates was necessary, however, for the propaganda image of 'scientific socialismat work.' Second, the complete design work, supervision of construction,provision of equipment, and, in many cases, actual factory construction weredone by Western companies under contract. They were kept to the all-
important dates by heavy penalty-bonus clauses. The fact that some largeplants were finished ahead of the planned date had nothing to do with'socialist construction.' It was quite simply that the Western firms respondedto the substantial bonuses payable for completion ahead of the contracteddate. When the Soviets attempted to repeat the feat of Western private enter-prise later in the 1930s, they were totally unsuccessful and became verysecretive about new projects.46
SKF (SWEDEN) AND THE MANUFACTURE OF BALL BEARINGS"Prior to the Great War in 19 15, the Swedish company Aktiebolaget Svenska
Kullagerfabriken (SKF), an internationally known manufacturer of ballbearings and transmissions, established an extensive and well equipped plantin Moscow. This plant was nationalized in 1918 but continued to work at fullspeed under its Swedish engineers through the Revolution. Sometime in 1920,negotiations started between SKF and the Soviets for a concession arrange-ment. Agreement was reported by the Chicago Tribune in October 192*, butnot by the Soviets for another eighteen months. The details are fairly dear,but the exact date of signature remains unknown.The SKF company was given the right to produce balls, bearings, and
transmissions and to export up to 15 percent of these products. Completesupply to Soviet industry was anticipated. The company was guaranteed a15-percent profit. In return, the company was allowed to purchase its ownprewar property (two plants and the remaining stock of raw materials) for apayment of 200,000 gold rubies. The plants were then re-equipped by SKF,
" Tonooo-pTtmythlmnaya Gaseta, May 16. 1919; and U.S. State Dept. Decimal1-ile, 316-131-674.
" V°j "^S<M d"1 ^T *e
,
Ger"ian Archives and suggests that the constructionunder the second and third Five-Year Plana, in which the Soviets relied muchmore on their own resources, was almost eatastrophically below projected targetsAt least part of this problem was caused by diversion of the finest of available skillsand equipment into military production.
" Sources for this section are the Chicago Tribune (Paris edition), October 3, imi •
Izvestta, No. 63, March 22, 1923; and the U.S. Consulate in Stockholm, ReportApril 4, 1923. ' r
'
178 Western Technology and Soviet Economic Development, igif~l^30
who supplied all patents and management, the Soviets supplied raw materials.
Some 400 workers were employed, with Swedish engineer Wilhelm Adrian
as manager. Three-quarters of the workers were Russian and the balance
Swedish '. . . paid in Swedish money and fed on imported Swedish food.'
The intent, according to Adrian, was to raise the standard of Russian labor by
mixing skilled Swedish workers with the Russians.
A completely new SKF plant was built under the agreement and produced,
with the re-equipped tsarist-era plants, about 2-3 million rubles' worth of
bearings per year, and the company paid a rental based on this annual volume
at a progressive rate. Previous to the Revolution, only bearings had been
produced in Russia; the steel balls were imported from Sweden. The Soviets
required the steel balls to be manufactured in the U.S.S.R., and up to that
time the company was required to keep on hand in its Moscow warehouses a
stock of balls equal to three times the quantity of bearings.
The Soviets were represented by two members on the Board of Directors,
although nominally and probably in practice the plant was run by a Swedish
management. Provision for arbitration was made with a board comprising two
members from each side and a president appointed by the Moscow High
Technical School; i.e., the Soviets had a say in management and a majority
in arbitration. All former SKF claims were cancelled by the concession. The
agreement was viewed by the United States consul at Riga with some distaste:
The Soviets having forced the owners to pay for the use of their own
property over a long period of years, will probably hold the transaction
out to the world as evidence that property once nationalized by them
has actually been bought back by the original owners."
The company was required to buy back its own plant and also required to
amortize its new equipment over twenty-five years, a lengthy period when
compared to a more normal requirement of five years. As the hidden intent of
the Soviets was to nationalize once again after the new plant and techniques
had been assimilated, the 'guaranteed 15-percent profit' was meaningless.
The concession was expropriated long before the expiration of the amortization
period. One has to examine Soviet attitudes to Western business to appreciate
the overriding importance of good faith in enterprise societies. Company
after company went into the U.S.S.R. with an agreement based on good faith,
and all eventually learned the meaning of the 'dictatorship of the proletariat.'
SKF had to buy back its own property for cash, make a second investment
from its own capital stock, and amortize that for the purpose of estimating its
'guaranteed profit* on the basis of a twenty-five year stay. Finally, however,
the whole investment was re-expropriated under conditions which effectively
" U.S. State Dept. Decimal File, 316-131-7*1.
'Sovietixation' of the Tsarist Mackine-BtaMuig Industry 179
precluded anything but a purely arbitrary Soviet settlement. One can under-stand why details of these investments are difficult to come by. The picture ofthe capitalist entrepreneur as a hardnosed calculating machine is shattered
by the story of his dealings with the Soviets.
One by-product of the SKF agreement was technical assistance in theproduction of high-quality steel. Under the SKF concession, the Sovietswere required to supply steel for the bearings. This posed a problem, as all
high-grade steel had previously been imported and there were no facilities
for production of this type of steel. The problem was solved in a characteristic
manner: the Soviets asked for technical assistance and the SKF Companyinstalled Swedish steel men in the Zlatoust steel plant in the Urals.
The transfer of Western ball-bearing technology was not completed bythe time of the second expropriation of SKF. Two further agreements weremade in 1930: one with Vereinigte Kugellager Fabriken A-G, of Berlin, andthe other with S. A. Officine Villar Perosa (RIV), of Turin, Italy"
STEAM BOILERS AND MECHANICAL STOKERSSteam boilers are essential for industrial production operations where coal
is a useful fuel. The relative decline of the economy under the Soviets may bewell illustrated by the increasing age of steam boilers between 1914 and 1924.
Table 10-5 AGE OF STEAM BOILERS IN RUSSIANPLANTS, 1914 AND 1924
Age igI4 1934
Under 10 years 3J . S percent 4.8 percentUnder 15 years 49.0 percent 53.0 percentUnder 35 years 1 1.5 percent 31.0 percentOver 35 years 4,0 percent 11,3 percent
1 00.0 percent 100.0 percent
Source: Troyanovsky, op. cit., p. 383.
In 1914, 35 percent of boilers were less than ten years old but in 1924 less
than 5 percent fell into this category. This suggests negligible replacement.Even more important, in 1914 only 15 percent of boilers were more thantwenty-five years old; by 1924 the figure had increased to 42 percent. Therewere 138 boilers in Briansk and Dnieper factories in 1923; of these, rn hadbeen built before 1900," Imports of boilers immediately after the Revolution
" Vneshtorgizdat, op. at., pp. 228-9, Barmine, op. at., p. 210, testifies to the lowquality of Russian ball bearings in this period. See Vol. II for further information.
** Izvestia, No. 278, December 5, 1923.
t So Western Technology and Soviet Economic Development, 1917-1930
sank to zero. Importation began again in 1921, rose to almost one-third of the
prewar level, and then declined after 1924. Steam boiler accessories followed a
similar pattern. The decline after 1924 was due to local production by a
concession.
In 1922 a concession was granted to Richard Kablitz, a Latvian firm, which
took back its old prewar Pctrograd factory and started again to produce steam
boilers, mechanical stokers, fuel economizers, and similar equipment. This
was by far the largest such plant in the U.S.S.R. Production expanded rapidly,
and by the end of the decade Kablitz had equipped over 400 Russian factories
with boilers and stoking equipment.80 In the last two years of the decade,
Kablitz turnover was substantial: more than 900,000 rubles in 1925-6, 1.4
million in 1926-7 and more than 1.6 million in 1927-8.
In brief, the Kablitz concession, operating from 1922 to 1930, enabled the
Soviets to eliminate importation of boilers almost completely since the firm
organized production and trained Russian workers in boiler production. It
made a very significant contribution to the re-equipment of Soviet industry.
The success may be established by the decline of boiler imports in the face of
increasing boiler age. By 1929, Kablitz had served its purpose. Taxation was
increased to the point where production was no longer profitable, and the
Soviets took over the Kablitz operation.61
PRECISION ENGINEERING TECHNOLOGY ANDITS ACQUISITION
Many skilled instrument-makers fled Russia during the Revolution, but in
1918 a group of these returned from the United States with a group ofAmerican
deportees and formed the Russian-American Instrument Company in Moscow.
They brought their own machinery from the United States, employed about
300 unskilled Russian workmen, and ran what was considered to be 'one of
the best factories in Russia. Members of the Third International were taken
to see it as an example of the finest conditions.' As the government was unable
to supply food, the enterprise broke up. 62
In 1 92 1, the pre-Revolutionary plants producing instruments, watches,
and precision equipment were grouped into Techmekh (the Precision Engineer-
" Bank for Russian Trade Review, II, No. 2 (February 1929), 10; and Izvestia,
No. 223, October 2, 1923.
" U.S. Consulate in Riga, Report 5997, March 25, 1929 (3 16-1 10-1014). In the view
of the Latvian Foreign Office, it was impossible to establish Latvian firms in the
U.S.S.R., as the Soviets 'would force them out of business either through taxation,
labor legislation, charges of economic espionage or some other method of persecu-
tion if the enterprise should become too prosperous or compete with a Soviet
industry.'
11 Keeley, op. eit. The trade unions also protested this plant.
•Sovietization1
of the Tsarist Machine-Building Industry 181
ine Trust). These comprised the former Duber plant (renamed the Geophy-
sika), the former Tryndin (renamed the Metron), and the Unified Watch
Works, formed from smaller pre-Revolution plants." The process of trusti-
fication did not appear to acUeve very much, and the next few years saw a
succession of concession agreements with foreign companies. These were Of
all three types and were allocated one to each branch of precision engineering.
Calculating machines, typewriters, sewing machines, clocks and watches,
razor blades, drawing instruments, and similar items were all subject to
agreements. The Soviet Union took the opportunity to change over to the
metric system. This problem was tackled by yet another concision the
Franco-Russian Association for the Study of the Metric System(SOVMETR)
a French-Soviet mixed Type II company which undertook the changeover
and the production of the necessary weights and measures. The difficulties of
changeover varied by industry and were dependent to a great extent on
conditions during the prerevolutionary period. In the electrical industry,
there was no difficulty, as the industry had been developed on the basis of the
metric system; but textiles, equipped extensively with British equipment,
posed considerable difficulties which Gosmetr (State Office for MetricWeights
and Measures) was unable to solve for some years.
The Singer Sewing Machine Company operated numerous plants, ware-
houses, and retail units in prerevolutionary Russia, including manufacturing
units in Moscow, Leningrad, and Vladivostok. These plants, producing one
quarter of a million household sewing machines, were valued by Singer at
S75 million." In addition, the wholesale and retail Singer network in tsarist
Russia included 50 central agencies and warehouses and more than 3,000
individual outlets for the sale and servicing of sewing machines. The Singer
sales force alone employed 27,500 in 191 4.
Nationalization of the Moscow and Petrograd Singer plants in 1917 and
the Vladivostok plant in 1923 was completely unsuccessful. The equipment
was found to be much too complex to operate on the basis of shock tactics
and revolutionary slogans. The factories were denationalized and returned to
the Singer Sewing Machine Company in 1925" This company, like many
others, assumed incorrectly that this admission of inability implied that the
Soviets did not wish to renationalize. No sewing machine output figures have
been recorded for the period 1917 to 1926-7; technical problems probably
• a Atmuaire, p. 39; and Troyanovsky, op. tit., p. 385-
" Based on claims filed with the U.S. State Dept in ,«. (Decimal gJ^^ST11TO\ Includina Russian government treasury bills and accounts in Kuwian Datura,
tte &5mdaim™ over Sioo million. (Foreign Claims Settlement Comm.ss.on
of the United States, Claim No. SOV-4°,92o.)_
« Denationalization, and the reasons for it , are noted in the German Foreign Ministry
Archives, T120-3033-H100454.
1 82 Western Technology and Soviet Economic Development, igij-igjo
inhibited production.** In 1926-7, the first full year after denationalization
and restoration of operations to the Singer Sewing Machine Company, the
plants produced 200,000 machines, a figure which rose to 500,000 by the
end of the decade.
In the early years of the New Economic Policy the Miemza concession wasgranted for the operation of a clock manufacturing plant in Moscow.After expropriation this became the Second State Clock Factory and wassupplied with additional equipment from the Ansonia Clock Company in
New York."
The clock and watch industry production problems were overcome in a
manner more suggestive of the massive 'turn-key' acquisitions of the 1950s.
In June 1929 Techmekh negotiated a contract with two United States firms
when Swiss firms refused to sell equipment necessary for watch plants. Thiscontract called for establishment of two complete watch and clock factories.
The first contract, with Dubert, was for a plant to produce 200,000 pocketand wrist watches a year to sell at retail prices between 20 and 40 rubles. TheSoviets obtained five-year credit terms, and the plant was built in the early
1 930s. This became the First StateWatch Factory. The other p lant was supplied
by Ansonia for the production of one million alarm clocks and 500,000 large
clocks for public squares, railroad stations, and public institutions. This plant
was also supplied on five-year credit terms and was named the Second State
Watch Factory, In both contracts, provision was made for the supply of
manufactured and semi-manufactured parts until such time as the plants wereable to develop their own input from internal Russian sources. About twenty-five specialists were sent from the United States to establish the plants andsupervise production for the breaking-in period.*8
Typewriters were not produced in the Soviet Union until after 1930.In 1929, the Moscow Soviet decided to build a typewriter factory and instruct-
ed Techmekh to negotiate with foreign firms for construction. An agreementwas made with the Underwood Company for technical assistance to manu-facture typewriters and calculating machines and for the intermediate-term
sale of machine parts for assembly in Russian plants. During the first twoyears, the new factory only assembled machines. In the first year, 5,000machines were planned for production, and in the second, 10,000. Thisfigure was scheduled to rise to 218,000 annually after ten years. Typewriter
" The U.S. State Dept. has a report (origin unknown) to the IX Congress of Sovietsnoting that the figure for sewing-machine production was 3 18 in the first half of1920 and 187 in the first half of 1921. Even this miserable contribution has the airof 'something is better than nothing' and is dubious.
" S. Weinberg, An American Worker in a Moscow Factory (Moscow: 1933), p. 18-19.*' Torgovo-Promysklennaya Gazeta, No. 147, June 30, 1929; and Ekottomichttkaya
Zhtzn, No. 191, August ai, 1929.
'Sovietizatiori of the Tsarist Machine-Building Industry 183
ribbons and supplies were produced by the Alftan concession after about
1924.** Pencils and stationery items were made by the Hammer (American
Industrial) concession. These companies were the only producers of these
items in the Soviet Union.
In the case of precision equipment, we can trace the start of a process of
acquisition which was to be developed more extensively from the late 1930s
to the 1950s. This was the purchase of single items or prototypes which wereexamined, broken down, and then used as the basis for Soviet production.
The Fordson (Putilovets) tractor was probably the first effort in this direction.
Purchases of small lots of Western machines began about 1927. For example,
in September of that year, a number of calculating machines were bought in the
United States, but only one or two each ofa large number ofmakes and models.70
Burroughs, Monroe, Marchant, and Hollerith were represented in the pur-
chase. In more difficult areas, such as marine instruments, technical-assistance
agreements were made: in the case of marine instruments, with Sperry
Gyroscope Company of the United States."
CONCLUSIONS
The process by which the tsarist machine-building industry was restarted
and modernized is quite obvious. A great number of the plants were physically
intact after the Revolution; skilled labor and engineering personnel were
missing. Both had been dispersed by the political upheaval,'*
" Ekonomicheskaya Zhizn, No. 346, November 28, 1924.,0 Amtorg, op. cit., H, No. 18, September 15, 1927, 5.71 A. A. Santatov and Louis Segal (eds.), Soviet Union Year Book, J930 (London;
George Allen & Unwin, n.d.), p. 359." The Foss Special Collection at the Hoover Institution illustrates the comparatively
advanced technology of tsarist industry. Foss, graduate of the St. PetersburgSchool of Mines, was variously builder and manager of the Briansky Works, theKolomna Locomotive Works, the Sormovo Works, and the Alexandrovsky plantbetween 1800 and 1917. The collection comprises eighteen large folders of high-quality photographs stressing the technical side of these plants.The photographs emphasize particularly the size of these prerevolutionary
enterprises; some shops at the Alexandrovsky and Sormovo were very large bycontemporary world standards. General neatness and order, uncharacteristic ofpost-revolutionary plants, is very noticeable (see the 'General view of blast furn-aces and coke ovens' in the Alexandrovsky folder). A high degree of Russiancraftsmanship is demonstrated in photographs of the erection of the manual training
school at the Kolomna Locomotive Plant, particularly in the stone and brick work.This craftsmanship is conspicuously missing in post-revolutionary buildings.Complex machinery was made in these plants. The Briansky Works folder has
photographs of intricate steel castings, stampings, bevel gears, helical screws,locomotive parts, small tools, and armaments, as well as complete locomotives andwagons. Kolomna Service Locomotive No. "Tiozy (dated 1897) is an impressivepiece of equipment. Of particular interest (in the Sormovo Works folder) is aphotograph ofa large planer under construction (dated 1 887) and an almost complete3-high plate-rolling mill. The latter is complete with run-out tables, cast rolls, andscrew-down mechanism. The rolls are about 84 or 96 inches wide and of great
1 84 Western Technology and Soviet Economic Development, igiy-xgyi
Several of the more complex machine-building plants were allowed to
continue unmolested (e.g., Wcstinghouse Air Brake and Citroen). The alter-
native was to see the plants at a complete standstill. The foreign owner viewed
the situation with a measure of hope. In some cases (Singer and International
Harvester) the plants were nationalized and then denationalized. This was
also seen as a sign of a genuine return to capitalism. Others were restarted
with German technical assistance forthcoming under the Rapallo economic
protocols. At the end of the decade, after a decision had been made to orient
to American technology, a series of agreements were made with American
companies: Baldwin Locomotive, Frank Chase, Albert Kahn, Sperry
Gyroscope, and Underwood, for example. In dicscl and engine building, the
decision was to continue with German (Deutz and Faudewag) technical
assistance.
In sum, the restored tsarist machine-building industry was on the way to
modernization at the end of the decade. Construction of new plants was on the
drawing boards of top American and German companies.
interest in the light of Soviet assertions that this equipment was not built in Russiauntil after 1930. In the Alexnndrovsky folder there are photographs illustratingforging and machining a one-piece zo-ton steel ingot into a connecting rod forthe cruiser Bogatyr (about 1890). Other features are the racks in Pickling ShopNo. 1 at the Kolomna Works. These are the same model in use in Welsh tinplatemills in the early 1950s. The worker's dress is decidedly better than that of thepost-revolutionary period.The reader who is interested in pursuing this comparison further should compare
the complete Foss collection with examples of the same plants in the Soviet period.One source for Soviet data is the booklets published by the Chief ConcessionsCommittee describing plants offered as concessions to foreign entrepreneurs.For example, see I. N. Kostrow, The Nadedjinsky and Taganrog MetallurgicalWorks (Moscow: 1920). The plants were in a pitiful state, having been allowed torun down during twelve years of Bolshevik rule. There is a photograph of theopen-hearth shop of the Nadedjinsky Works, which indicates that the shut-downplants only needed work to get them into operation. Nadedjinsky appears partiallyin operation, but one furnace is obviously 'cold,' with debris and trash heapedaround the furnace doors.
CHAPTER ELEVEN
Electrical Equipment Manufacturing Industry
and Goelro1
THE FORMATION OF TRUSTSA Russian electrical equipment industry was established in the decade beforethe Revolution. In 1917 the industry was concentrated in Petrograd (about 75percent) and Moscow, and employed some 60,000 workers. The Soviets
nationalized the industry, which came through the Revolution with its equip-ment substantially intact
From 1921 onward, the government invited a series of foreign experts andcompanies into the U.S.S.R. to make recommendations for modernization.The first known report by a Western engineer painted a chaotic picture. Someplants were closed; in those that remained open, employment was 5 to 10percent of the prewar level (about 4,000 in 1920) and production even less.
Many skilled Soviet workers had entered military service to get food and shelter
;
the more skilled foreign workers had returned home; and those domesticworkers that remained were largely inefficient. Wages did not correspond to
ability. Bench workers often earned more than skilled technicians. Communistspossessing little or no technical ability served as technical directors, and 'white'
skilled engineers were serving in minor posts. Stocks of raw materials ranout; no means existed for importation or domestic supply.
On the other hand, the industry was in relatively good shape technically;
only a few plants required re-equipment .*
1 This chapter is based on Soviet sources published inside and outside the U.S.S.Ron reports submitted to the U.S. State Dept. by representatives of Americancompanies invited to exam ine the condition ofthe electrical industry, and on materialon Allgememe Elektrizitats Gesellschaft (A.E.G.) from the German ForeignMinistry Archives.
* See the Report by B. W. Bary, electrical engineer, to the U.S. Consulate at Vibourg,October 19* «• The covering letter describes the report as 'competent,' 'comprehen-sive, and 'a measure of the true conditions.' (316-139-11.)
1 86 Western Technology and Soviet Economic Development, igi?-i$30
Confirmation of the excellent technical state of the inlustry comes from a
surprising source—Charles P. Steinmetz, the inventive^ genius of General
Electric Company, who was certainly not unsympathetic to the Bolshevik
Revolution:
It is interesting to note that Russia had a considerable electrical industry
before the war, so that in 1913 more than half the electrical machineryused in Russia was built in Russia , . . (but) in 1920 the output of theelectric factories in Russia was very low. It is stated however that their
equipment including tools, etc., was perfectly intact and ready to resumelarge scale operation.1
The first step in reconstruction was to organize the industry into four trusts.
The total industry contained thirty-two plants, of which twenty-six were in
operating condition and six completely idle, or, as the Soviets expressed it,
'in a state of technical preservation': i.e., in working condition but not
operating. The twenty-six were working very intermittently. The four trusts
formed were :( 1 } the Electro-Technical Trust for the CentralD istrict{or GET),
to manufacture high tension equipment,(2) a trust f«-r manufacture of electrical
high-tension equipment (Elmashstroi), (3) the low-tension equipment trust, for
telephones and radio apparatus, and (4) the accumulator-manufacturing trust.
The formation of the trusts brought prerevolutiOAary managers back to
positions of authority; although usually these were technical men, one at least
had been a company director. Lew Zausmer, a former officer of the Russian
General Electric Company, became one of the trio of directors controlling
the Electro-Technical Trust,
Concurrently with this reorganization and the return of former managerial
and technical personnel, invitations were sent to foreign electrical equipment
manufacturers to participate in the development of the .ndustry. On March
29, 1922, Maurice A. Oudin, President of the General Electric Company,
informed the U.S. State Department that 'his company feels that the time is
possibly approaching to begin conversations with Krassin relative to the
resumption of business in Russia.' The State Department told Oudin that this
was a question of 'business judgment.' Oudin then added that negotiations
Charles P. Steinmetz, 'The Electrification of Russia,' p. 3 of typescript supplied to
the writer by the Schenectady Historical Society, New York.The reports of Western company representatives are of particular interest and
agree with Steinmetz on this point. These engineering reports were to form thebasis of managerial decisions to enter or not to enter into agreements with theU.S.S.R. As the reports were made by engineers, they are important for their
estimates of the technical state of the electrical plants. These engineers had unres-tricted access granted by the Soviet authorities and collected detailed data. Thewriter gives this data greater weight than that from any other source, including theintelligence reports found scattered throughout the U.S. State Dept. Archives.These engineers (Bary, Reinke, Keeley, Klemmer, and others) were skilled observers,knew the Russian language and also many of the engineers in the plants they visited.
Electrical Equipment Manufacturing Industry and Goeko 187
were currently under way between General Electric and A.E.G. (GermanGeneral Electric):
... for resumption of the working agreement which they had beforethe War. He expects that the agreement to be made will include a provi-sion for cooperation of Russia.4
Within four weeks an offer was made to International General Electric
Company to participate in a joint mixed-capital company:
We believe that the low rate of wages as well as the excellent conditionsof the outfit (equipment) of the works will give you sufficient economicgrounds for taking part in our business, either in the way of supplyingus with certain materials, or by a partial finance in exchange for theproducts worked out by our factories.8
Table 11-1 AGREEMENTS BETWEEN FOREIGN COMPANIESAND THE ELECTRICAL EQUIPMENT TRUSTS, 1922-30
Trusts formedfromprerevolutionary plants Affiliated foreign firm
Type ofconcession*
Electro-Technical Trust (GET)
Elmashstroi
Low-Tension Trust
Accumulator Trust
New Soviet undertakingsElectroselstroi
Electroexploatsia
International General Electric
Allmanna Svenska Elektriska A/B(A.S.E.A.)
AUgemeine Blektrizitits A-G(German General Electric)
Metropolitan-Vickers, Ltd.Radio Corporation of AmericaAUgemeine ElektrizitSts A-GMetropolitan-Vickers, Ltd.John J. Hifjgins (U.S.)Ericsson (Sweden)Radio Corporation of AmericaCompagnie Generale de TSF (France)Gaso-Accumulator A/B (AGA)(Sweden)
Allmanna Svenska Elektriska A/BInternational General Electric Co.
Ill
I and III
inin111
ininin1
inin
I and III
II and IIIII and III
Sources: 1. U.S. and German Archives.
2. Annuaire, 1925-25.
3. Troyanovsk, op. cit.
4. Klemmer Reports to Western Electric Co., 1926 (U.S. State Dept,Decimal File, 316-141-630) and 1927 (U.S. State Dept. Decimal File,316-60-95).
Sec chap, t for definition of concession types.
U.S. State Dept. Decimal File, 661.1115/402. Memorandum from D.C.Pooleto Secretary of State, March 29, 1022,
U.S. State Dept. Decimal File, 316-139-58. Letter from the Electro-TechnicalTrust to the International General Electric Company, Schenectady, May *, 1922.
1 88 Western Technology and Soviet Economic Development, 19x7-1930
Two points are notable: first, the statement that the equipment in the plants
was in good working order, and second, the timing of the letter from the
Electro-Technical Trust to General Electric. It arrived just four weeks after
the State Department conversation.8
After 1922 a series of similar invitations was sent, and agreements were
concluded between all four trusts, individual plants within each trust, andmost major Western electrical equipment manufacturers, including Inter-
national General Electric, A.E.G., A.S.E.A. (Sweden), Westinghouse (through
its U.K. subsidiary, Metropolitan-Vickers), Ericsson of Sweden, Brown-Bovcri (Switzerland), Western Electric, and Siemens, as well as numeroussmaller companies.
These agreements were made at two organizational levels: the trust and the
individual plant. At the trust level they provided technical assistance, patents,
drawings, and exchange of personnel (Type III agreement). At the plant level
the contracts provided for technical assistance and also, in some cases for
plant operation as a pure Type I concession by the Western entrepreneur.
Table 11-1 lists the four trusts formed by the Soviets from prerevolutionary
factories together with the affiliated foreign partner, and the Soviet enterprises
Electroselstroi and Electroexploatsia which were developed by the Soviets
and did not incorporate prerevolutionary plants. They had affiliated foreign
partners and operated in the form of 'mixed' companies, or Type II conces-
sions with technical assistance features.' One Western company managed to
evade nationalization after the Revolution. A.S.E.A. (Swedish General
Electric) operated its Leningrad plant from the time of the Revolution through-
out the 1920s and even managed to get its Yaroslavl plant, built in 1916,
denationalized and converted into a Type I pure concession in 1924. Therewas also an independent factory, the Carbolite, operating outside the control
of the trusts and coming directly under Glavelectro until it was abolished. 8
The four trusts will now be considered in more detail.
THE ELECTRO-TECHNICAL TRUST (GET)
GET was responsible for manufacture of high-tension equipment and wasformed by grouping together the major prerevolutionary dynamo andelectric motor works located in Moscow and the Ukraine, including the
' It may be that Zausmcr, the ex-officer of General Electric and a director of theElectro-Technical Trust, had some influence on this decision. He is quoted by aBerlin newspaper as follows: '
. . . the Russian electrical industry cannot developwithout the support of the highly developed electrical industries of Germany andAmerica.' (Botrson Courier, September 25, 1922.)
' Annualre, op, {it. (rear page 24).
" The German Foreign Ministry Archives refer to a 'Curtio project'; otherwisenothing is known of this operation. (T120-4Z47.)
Electrical Equipment Manufacturing Industry and Goctro 189
Kharkov works of the General Electric Company and its twelve assembly
divisions in major industrial centers throughout the Soviet Union. All type9
of heavy electrical machinery, including generators, motors, transformers and
turbines, were produced.
Table 1 1-2 PLANTS COMPRISING THE ELECTRO-TECHNICAL TRUST
Prerevolutionaty Name Soviet Name Production
Russian General Electric Dynamo A-G Electric motors(Moscow and Petrograd)
Allgemeine ElektrizitSts A-G Electrosila (Kharkov) Electrical equipmentAllmanna Svenska Elektriska A/B (A.S.E.A. concession) A.C. electric motors
A.S.E.A. obtained its prerevolutionary plant as a Type I concession andin 1927 received another Type I concession to build and operate a plant at
Yaroslavl for production of alternating current electric motors.9 By 1928 the
company was producing 500 motors a month at Yaroslavl, 'the output sold on
partial credit terms mainly to state-owned enterprises.' 10 The construction
involved an outlay on buildings and equipment of between 15 and 18 million
rubles. The new plant had 28,000 square meters of floor space and 1,500
employees, and in 1929 produced at the rate of 30,000 electric motors per year.
In weight this was 48,000 tons of equipment, valued at 14 million rubles.
Production included alternating current motors ranging from 1/4 to 700 h.p.
Equipment for the Yaroslavl factory came from the Swedish General Electric
factory at Stockholm. A royalty was payable by the Soviets on all production
during the life of the concession, agreed upon at thirty-five years but expro-
priated long before the final date.
The widest impact of G.E. technology came, however, from agreements
made after the Swedish General Electric concessions. There had beennegotiations between A.E.G. in 1 922 and 1 923 following the letter sent byGETto International General Electric. These negotiations were not immediately
successful. Their failure probably placed G.E. at a competitive disadvantage;
Siemens-Schukert Werke A-G, for example, had granted credits as early as
1922. Metropolitan-Vickers (the Westinghouse subsidiary) had been in the
U.S.S.R. from about 1922 onwards. The G.E. company therefore continuednegotiations through its German subsidiary.11
The first technical-assistance agreement was concluded between Uchanov,Chairman of the Electro-Technical Trust, and A.E.G. in October 1925. This
* Amtorg, op, at.. Ill, 374." Ibid,, E. P. Lindgrcn, Director of A.S.E.A. (Swedish General Electric).11 U.S. State Dept. Decimal File, 316-130-41.
I go Western Technology and Soviet Economic Developm-mt, 1917-1930
agreement included the manufacture of General Electric generators, electric
motors, and transformers of high-voltage types. The trust was given the right
to produce A.E.G. products and use 'all patents, protective certificates,
inventions, construction and experiments belonging to A.E.G. in the field of
high-voltage currents.' la General Electric was required to furnish data on
request and to accept and train Russian engineers in German plants for a
period of five years. The agreement was supplemented and continued by
other agreements which continued the technical-assistance program until
1938. A royalty was payable on all production of high-voltage electrical
products for which A.E.G. held manufacturing rights from the parent
company in the United States.13 As a quid pro quo for technical assistance,
substantial quantities of equipment were purchased on credit terms for the
plants comprising the trust.
Table 11-3 PRODUCTION OF HEAVY ELECTRICALEQUIPMENT IN RUSSIA AND THE U.S.S.R., 1913 TO 1929-30
Year
Electrical Equipment Manufacturing Industry and Goelro 191
which included General Electric and Westinghouse patents in the field of
communications, concluded in 1929 and discussed at length in chapter 14,
Even while this technical transfusion was in progress, the Party propagan-
dists were unable to restrain themselves from 'agitprop.' A challenge wasissued "from the workers' of the ex-A.E.G. plant in Kharkov to the A.E.G.
plant in Berlin to engage in 'revolutionary emulation,' and a delegation of
working men from Berlin was invited to the Kharkov plant 'all expenses paid.'
The benefits of 'revolutionary emulation' to the General Electric Companywere not spelled out.11
THE ELECTRICAL MACHINE TRUST (ELMASHSTROI)
This trust grouped high-tension equipment plants in Petrograd, including
the Siemens A-G plant (renamed the Electrosila), with the Volta factories in
the Urals. Elmashstroi negotiated an agreement with A.E.G. in late 1923 for
technical assistance. A.E.G. was required to supply drawings, machines, and
apparatus for the production of high-tension equipment, together with aid in
construction of electrical manufacturing plants within the U.S.S.R. Russian
engineers were sent to Germany for training and German engineers were sent
to the trust offices and plants in Leningrad. The agreement ran initially for
five years, and a percentage of all production was paid to A.E.G. as a royalty."
The most important plant in the trust was the Electrosila, originally built
in 1893. This trust had a chaotic history of technical assistance under the
Soviets. In tsarist times the plant had produced steam turbines and generator
equipment. In 1923 Electrosila adopted the designs forthcoming under the
A.E.G. agreement. Then came four management changes in rapid succession,
Table 11-4 THE ELECTRICAL MACHINE TRUST (ELMASHSTROI)
Prerevolutionary Name Soviet Name Production
Siemena-Schukert A-G
192 Western Technology and Soviet Economic Development, 1917-1930
and by 1925-6, turbines were being built under a ten-year agreement with
Metropolitan-Vickers, This was apparently not too successful, because one
year later a further change occurred. As A. Monkhouse, the Metropolitan-
Vickers chief engineer in the Soviet Union, puts it, 'a great American com-
pany contracted to render technical assistance to this and other factories
and thus American designs were introduced.' ls
The 'great American company' was International General Electric. Russian
engineers were then sent to the United States for training, whereas previously
they had gone to the United Kingdom. In 1931 the Metropolitan-Vickers
company again obtained the technical-assistance contract, and this heralded
yet another series of management changes.
In the tsarist era, electric light bulb production was concentrated at Svetlana
Gluklampenfabrik in Petrograd. In 1913 the plant produced 2.85 million
electric light bulbs, and in 191 6 over 4.58 million (a good example, incidentally,
to show the fallacy of using 1913 as a comparative base). Production in 1920
fell to about one-quarter million, but later recovered (with the use of imported
wire), reaching a level between the 1913 and 1916 outputs (3.82 million in
1922-3). 17 In May 1923, Ekonomicheskaya Zhizn published an interview with
the chief of Glavelectro, A. G. Holtzman, who had just returned from negotiat-
ing with Osram in Germany, Phillips in Holland, and General Electric in the
United States for the introduction of the latest in Western techniques in the
manufacture of electric light bulbs. A joint-stock company was proposed, in
which the Soviets would provide the plant (the tsarist Svetlana plant) and the
foreign partners would introduce modern equipment.
The objective was as follows
:
, . . Russia would develop within two years to the same extent as nowexists in Western Europe and America. The Russian bulbs must not beworse nor more expensive than those produced by the aforementionedfirms."
In the following months, agreement was also reached with the International
Electric Light Cartel. With the aid of Western technical experience, produc-
tion was increased from 1,500 to 7,500 bulbs per day. At first, tungsten wire
was purchased abroad, and later Russian tungsten wire was used. From an
output just under four million in 1922-3, there was a significant increase to
thirty-three million bulbs in 1929-30. I0
" A. Monkhouse, Moscow 1911-1933 (Boston: Little, Drown and Co., 1934), pp.
'9+-S-17 Nutter, op, cit,, p. 458.
" Ekonomickeskaya Zliizit, No. 96, May 3, 1923.
" Nutter, he. tit. It is known that a Polish Type I concession, Yan Serkovsky, operatedan electric lamp plant in Moscow. As the Svetlana was the only plant able to produceelectric light bulbs the plant was possibly leased to this group. (U.S. State Dept.Decimal File, 861.602/211.)
Electrical Equipment Manufacturing Industry and Goetro 193
THE LOW-TENSION TRUSTThe Low-Tension Trust was comprised of the tsarist-era plants in Lenin-
grad, Moscow, and Nizhni-Novgorod which had made telephone and telegraph
apparatus. In 1923 this was probably the most efficiently operated Soviet
trust. The trust president, Joukoff, was a party member but, unlike most of
hi3 confreres, who were long on talk and short on management ability, Joukoff
had excellent management abilities, was entirely responsible for financial
matters, and was directly supported by a team of 'white' technical experts
who managed internal operations of the plants.
The 'white' technical directors were hold-overs (former engineers, not
former directors) from the prerevolutionary electrical industry. Theyincluded Mochkovitch, formerly chief engineer of the Heisler Company(owned by Western Electric) and Kolotchevsky, formerly of the B.T.M.company. These technical directors functioned alongside 'red' directors.
The latter were party members who nominally directed the plant but in
practice left the 'white* technical men to operate independently in the technical
sphere. The equipment in all the plants in the trust was intact and maintained
in good order. Each plant operated as an independent profit-making unit.
The ex-Western Electric Heisler plant employed some 850 men: slightly
less than its 1917 employment level of 1,100. Inmid-i9Z3, the plant was busyon an order for 900 train-dispatching sets for the Railway Administration, its
only major customer.
Table 11-5 PLANTS COMPRISING THE LOW-TENSION TRUST
T,„ . , ___, Number of workers _isanst name . Productionloty 1 1916 1 1923* 19261
Ericsson (Red Dawn) 1275 2700 900 4800 Automatic telephone equip-
,ment and switchboards
Heisler A-G 845 900 850 1200 Telegraph equipment andloudspeakers
Siemens Halske A-G 750 2200 600 1300 Radios, R.R.-signaling metersElectro-vacuum plant (new) — — — 250 Radio and roentgen tubesMarconi plant — — — 350 Military radiosTelephone plant — 1200 — tooo Radio receiving equipmentSiemens — 1200 — 700 Telephone sets
Sources: • Klemmer report to Western Electric Company, 1927 (U.S. State Dept.Decimal File, 316-141-630).
* Reinke report (U.S. State Dept. Decimal File, 316-108-672).
The Ericsson plant employed 900 (considerably fewer than the 3,500employed just before the Revolution) and was making Ericsson-type tele-
phones—the only producer of telephones in the U.S.S.R. It was operated as a
194 Western Technology and Soviet Economic Development, igij-ig^o
concession and was able to produce all types of telephone equipment except
lamps (which were imported from Germany or Sweden), and cords and cables,
(which were bought from the Cable Trust). Troubles were reported in 1923;Soviet raw materials were of poor quality, and some items, such as enameledwire and magnet steel, were either in short supply or unobtainable. Production,
therefore, averaged only about 7,000 sets per year, although capacity was 12,000
telephone sets annually. Nutter40 gives the telephone output as rising from
13,300 in 1923/4 to 117,000m 1929/30. As Ericsson was still the sole producer,
this was also the measure of Ericsson's ability to increase production during
the decade.
The Siemens Halske works in Petrograd, previously a manufacturer of
telephone equipment, employed some 600 and was preparing to change over
to the manufacture of radio equipment under technical direction of CompagnieGenerale de TSF (which Reinke erroneously calls French General Electric).81
Since the Revolution, this plant had been at a standstill except for a little
repair work.22 Reinke, the Western Electric engineer who visited the plant,
concluded that the chance of a mixed company or pure concession for WesternElectric, the previous owner, was remote. Reinke concluded that the U.S.S.R.
was 'encouraging only badly run factory trusts to get into mixed companies.'
However, he did comment that the trust was anxious to associate itself with a
large foreign firm. He explained this on the basis that although the plants wereoperating efficiently, they lacked the ability to progress. 23 This observation is
confirmed by the subsequent agreement between the Low-Tension Trust andCompagnie Generate in June 1923 and Ericsson in 1924. Even a well-run
trust required foreign technology to make technical progress. In the 1920s
this could be explained on the basis of a negligible research and development
investment. More recently the notable absence of Soviet innovation which can
compete in the Western marketplace has had to be explained on quite different
grounds. 44
10Ibid., p. 448.
" Based on the Reinke Report (mid-1923) (State Dept. Decimal File, 316-108-672).This was supplemented by two later reports in 1926 and 1927.
" Keeley Report (3 16-107-100).
" 'The present technical men are those formerly in control, and they are doingpractically as good a job as in 1917. They can get on very comfortably without us.But what they lack is the ability to go ahead. The same difficulty existed in 1917when the factories depended on the foreign mother companies to lead the way.'(Reinke, op. cil.)
11 Klemmer lists electrical products not produced in the Soviet Union in 1927, fouryears after the Reinke Report. These were: generators above 5,000 kw, all types ofhigh-tension equipment and transformers, fine insulated wires, special lamps(including all over 200w), high-tension insulators, carbon brushes and carbonmaterials (including telephone carbons), heating appliances, nickel steel accumula-tors, measuring instruments, automatic telephone equipment (including pneumatictubes), condensers, all types of electrical consumer equipment {including vacuum
Electrical Equipment Manufacturing Industry and Goelro 195
TECHNICAL ASSISTANCE TO THE LOW-TENSION TRUSTIn June 1923 the Compagnie Gencrale de TSF of France signed a technical-
assistance agreement with the Low-Tension Trust to re-equip its plants withmodem machinery and processes, to supply technical assistance, and to build
electrical substations in the Moscow area. A new electro-vacuum plant wasestablished by the Compagnie Gen6rale, using French methods of producingcathode ray tubes and radio tubes. The old Petrograd plant of Siemens wasequipped to manufacture radio transmission equipment for radio stations.
Other plants of the trust were similarly modernized, 'after which Russian
radio technique (will be) on the same level as the French,' as Klemmer says
in his report. The trust sent its engineers to France for training, and Frenchengineers went to the trust plants to provide the engineering and operational
assistance required. Equipment was supplied on rive-year credit terms."Patents were transferred from France and, unlike other contractors, the Frenchwere able to negotiate a payment (the amount unknown) for the technical-
assistance features. The very extensive nature of the Compagnie Generateagreement is suggested by the transfer of over 38,000 drawings and 3,000technical specifications in the first two years of the cooperation.**
The Compagnie Ginerale agreement was followed by another with Ericsson
of Sweden, which took over its old plant in Petrograd for the manufacture of
telephones. This was, in effect, a formality, as Ericsson engineers had beenworking in Petrograd almost continuously since the Revolution. Modernmachinery, imported from Germany and Sweden, included automatic screw
machines and automatic punching, milling, and tooth-cutting equipment fromthe United Kingdom and the United States. Inspection and test equipment wasinstalled. This re-equipped plant started production in 1926, at first withSwedish raw materials and later with Soviet-produced raw materials. Ericssonhad four engineers in the plant with complete authority to control and approveevery step of the production of automatic telephone equipment. All drawings
cleaners), electrical medical apparatus (including roentgen tubes), and specialelectrical apparatus. (Klemmer, op. tit., p. 42.)
Some of these items were the subject of technical-assistance agreements apparentlynot known to Klemmer (for instance, medical apparatus, nickel accumulators,high-tension equipment, high-tension insulators, and transformers). Most camewithin the scope of technical-assistance agreements by 1030.
™ The Soviets erected 43 internal radio stations between January 19*3 and January1927; all except the experimental models were with French technical assistance.Klemmer states the manufacturer in 22 cases; 16 were built by the Low-TensionTrust-Compagnie Generate operation, 4 were built by local laboratories on anexperimental basis, and 2 radio stations were imported. Later, more powerfulstations were built either in the U.S. by RCA or in the Soviet Union with RCAtechnical assistance after assurances by the State Dept. to RCA that they would notbe used for propaganda (see chaps. 14 and 18). (316-141-712 et teq.)
•• Izvestia1, No. 15, January 18, 1924; and No, 33, February 12, 1924. See alsoSoviet Union Yearbook 1917, p. 169.
196 Western Technology and Soviet Economic Development, 1917-1930
and technical information were supplied by Ericsson. Locally made Russian
drawings and technical instructions had to receive approval of an Ericsson
engineer before use. Between ten and twelve Russian engineers were trained
in the Ericsson Stockholm plant for periods ranging from three to six months
and then returned to Leningrad, ultimately to take over production control."
Credit for the arrangement was supplied by a consortium of Swedish banks.
The technical contribution of the foreign electrical companies enabled the
trust to increase its output from two million rubles in 1922 to more than
thirteen million rubles in the year 1924-5. According to Klemmer, this
increase was mainly due to the work of Ericsson.
The 1927 Klemmer Report28 indicated that 1926 output in the electrical
equipment industry was 20 percent greater than the previous year, with
Ericsson showing the most progress. Several new shops had been opened and
about one-third of the plant had received new equipment. At this point about
one-third of the employees of the Low-Tension Trust were working for the
Ericsson Company.
There was a less significant agreement for the manufacture of long-distance
receiving sets, including the transfer of patents, with the German company
Telefunken Gesellschaft fur Drahtlose Telegraphic. 29
In 1926-7 all Low-Tension Trust products were copies of Western equip-
ment. Klemmer noted that the trust microphones were an 'exact copy' of the
Western Electric Model 373-W, the loudspeakers were the balanced armature
accord type (Western Electric Model 4002) and the amplifiers and public
address systems had been copied from Western Electric systems. The Russians
had produced domestically designed radio valves, but according to Klemmer
these would not work. In 1926 they were producing, and attempting to export
to Latvia, the Western Electric Models 216-D, 102-D, 205-B, and 2ii-D.M
Klemmer should have known; he was an engineer with Western Electric.
The trust teletype machines were allegedly designed by A. F. Shorin, but
Klemmer points out that the design was no more than a Morcum printer
combined with the Murrey keyboard. Further, although the Kaupush distri-
butor (of which the trust manufactured about 20 in 1926-7) was claimed as a
Soviet design, it was actually based on the Baudot repeater. Quite clearly these
manufacturing efforts were part of a learning process, although the products
manufactured were in many cases useless.
The electrical industry was the advanced sector of the economy, and the
Low-Tension Trust just described was the most advanced trust within the
" Klemmer, op. cit., p. 27.
58 U.S. State Dept. Decimal File, 316-60-124.*' Vneshtorgizdat, op. cit, p. 228.'° Klemmer, op. cit., p. 28.
Electrical Equipment Manufacturing Industry and Goelro 197
electrical industry. Other branches were using 40-50 percent imported
materials and more extensive foreign technical assistance.*1
THE ACCUMULATOR TRUST
The Accumulator Trust employed about 250 in 1923. Combined within it
were the prerevolutionary accumulator, lighting, and illuminating fixture
firms in Moscow and Petrograd. In 1912 the value of product for this sector
was 24 million rubles; in 1922/3, the value was only 0.6 million rubles.
In December 1924 an agreement was made by the trust with the Swedish
company Gaso-Accumulator A/B (AGA) whereby the Moscow Lukes
(or Lux) plant was leased under a concession agreement. The company was
required to produce equipment valued at 210,000 rubles in the first year
(one-third of the current Soviet output), rising to 470,000 rubles in 1926-7,
AGA paid 75,000 rubles to the trust for the stock of raw materials and unfinish-
ed work in the plant. The company was required to re-equip the plant and
after twenty-five years turn the plant over to the government. A royalty of
3 percent was paid on gross turnover.82
Insulating materials were the subject of an agreement between Centropro-
bizol and the Swedish Company Vakander in 1927. This was a Type III
agreement which ran for five years and included supply of the complete
equipment for a plant to produce all types of insulating materials. Theagreement included construction, start-up assistance, training of engineers,
and the supply of production and technical data. Russian engineers were
allowed to make 'a thorough study of the Swedish production methods.
'
M
This agreement was followed by a General Electric technical agreement with
the Izolit insulation materials plant in 1930.3*
The Soviets formed two trusts which did not include major prerevolution-
ary institutions and indeed had had no exact equivalent in tsarist times.
One was Electroselstroi, a joint-stock company founded in June 1924 with
the same objective as the United States Rural Electrification Authority: to
expand the use of electricity in rural areas. Electroselstroi undertook construc-
tion of district electric generating stations of a standard type and sold electric
motors, generators, and allied equipment to state farms and collectives. TheSwedish General Electric Company was a shareholder (with a participation of
250,000 rubles purchased for cash) along with the People's Commissariat for
Agriculture, Gosstrakh, Gosspirr, and Sakharotrust. The Swedish company
n Klemmer, loc. cit,
" U.S. State Dept. Decimal File, 316-139-554." Amtorg, op. cit., II, 14."
Ibid.
tg8 Western Technology and Soviet Economic Development, 1917-1930
had the function of organizing and supplying equipment for sale by the trust
and no doubt its share subscription was 'a fee' for this privilege.35 The
General Electric Company was also one of the 'main shareholders' in Electroex-
ploatsia, the second of these trusts, specifically designed to promote the use of
electrical systems, in accordance with Lenin's dictum that 'socialism is
electrification.'3*
THE INTERNATIONAL GENERAL ELECTRIC COMPANYCONTRACTS OF 1928 AND 1930
A contract of fundamental importance was signed in 1928 by the Soviet
Union and the International General Electric Company. Under this contract
the company supplied to the Soviet Union $26 million worth of electrical
equipment on six-year credit terms. The Soviets claim that G.E. agreed to
consider all prewar claims against the U.S.S.R. as settled." Technical assist-
ance was an integral part of the agreement. This began what General Electric
has described as 'a continuous uninterrupted record of close technical
collaboration and harmonious commercial association.' M
The 1928 agreement was followed by a tong-teim technical-assistance
agreement signed in 1930, under which 'vast amounts' of technical, design,
and manufacturing information flowed from General Electric in Schenectady
to the Soviet Union. The Soviet Union established an office at Schenectady
and G.E. a parallel office in Moscow.
There was the usual exchange of personnel, training of Soviet engineers in
the U.S., and dispatch of American engineers to the U.S.S.R. to implement
the agreement. The Electrozavod transformer plants, the Izolit insulation
material plant, the Dynamo locomotive plants, the Electrosila plants, Electro-
apparat and Electric works in Leningrad, and the turbine plant in Kharkov
received groups of G.E. engineers. In general, however, the great impact of
direct General Electric technological assistance was not in the period 1 9 17 to
1930. Development before 1930 was dependent on Metropolitan-Vickers and
A.E.G. (i.e., indirect G.E. technical assistance}. The General Electric era was
after 1930.39
55 U.S. State Dept. Decimal File, 316-139-56. Atmuaire, op. cit., rear p. 24.
36 Troyanovsky, op. cit., p. 791.
" lsvestia. No. 247, October 23, 1928.38 Monogram, November 1943.
" The 1928 General Electric contract was closely examined in Germany. The Rapallo
Treaty contained a clause that compensation would be relinquished only for Germanclaims against the U.S.S.R. so long as the Soviets did not make payments to anyother power. The Soviets argued that G.E. was a private company, not a power, andthat therefore the Rapallo clause did not apply. The Germans considered the G.E.agreement a violation of the Rapallo Treaty, as the company received a payment of
Electrical Equipment Manufacturing Industry and Goelro 199
THE METROPOLITAN-VICKERS ELECTRICAL COMPANY—MASHINOSTROI TECHNICAL ASSISTANCE AGREEMENT
In addition to German assistance in the electrical industry, two other
European manufacturers rendered substantial assistance and equipment. In
1927 the Brown-Boveri Company of Switzerland opened an office in Moscowto implement the installation and erection of equipment supplied under a
number of contracts with the U.S.S.R. Little is known of the content of these
agreements.40
Far more important was Metropolitan-Vickers, a United Kingdom subsid-
iary of Westinghouse. The company has operated in Russia since the turn
of the century, installing several large electricity-generating plants and the
electrification of the Moscow tramway system in 1906. Just before WorldWar I, the company became associated with Russian General Electric (the
Dynamo works) which then took over the Metropolitan-Vickers plants in
Moscow.41
After the Bolshevik Revolution, Metropolitan-Vickers returned to Russia
and by 1924 had several large contracts in progress. Each major technical
advance made by the company in its U.K. plants was transferred to the Soviet
Union. In the early 1920s significant advances were made in the operating
speed of generators. A world record was set by a Metropolitan-Vickers
generator of 38,500 Kva (3,000 rpm.) installed in a Soviet power station in
1926. Similarly, in the same period there was an increase in transmission
voltages; Metropolitan-Vickers manufactured transformers for Soviet 110-kVand 115-kV systems were installed in 1923, some five years before the start
of the British grid system utilizing similar transmission voltages. In 192a thecompany developed outdoor switchgear for 132-kV systems. Several 1500-
MVA 132-kV circuit breakers were installed in the U.S.S.R. within two yearsof initial development. These sales of the latest products of the Metropolitan-
Vickers laboratories were followed in 1927 and 1931 by long-term technical-
assistance agreements. The 1927 agreement was initially signed with Mashinos-troi for six years at £30,000 ($150,000) per year and covered that turbine
construction which formed the basis of the Soviet turbine industry." Thecompany maintained extensive erection and technical facilities in the Soviet
SS7S.403 as compensation for its claims on theU.S.S.R, G.E. claims this was only apartial settlement. The Foreign Claims Settlement Commission (Decision No.SOV-3110) made an award of 81,157,407.26 plus interest to G.E. This dispute, ofcourse, has not been settled. (340-6-517.)U.S. State Dept. Decimal File, 316-131-1010.W
jSH?Bh?
use 'eft **uss'a in '9'3 except for a bank account. This was expropriated,and Westinghouse has received Is,703.44 from a claim amounting to $49,400 plusinterest. Letter from Westinghouse to writer, March 4, 1966.
J. Dummerlow, 1899-1949 (Metropolitan-Vickers Electrical Company, 1949).
2oo Western Technology and Soviet Economic Development, 191J-1930
Union, an office at Electroimport, a company office at Leningrad and a
'compound' with several buildings at Perlovka, just outside Moscow.48
Company engineers established the manufacture of turbines according to
company plans on 'a large scale' under R. Cox, its chief mechanical engineer,
in the U.S.S.R. Soviet engineers and foremen were s-.-nt to the United Kingdom
for training. In 193 1 another agreement with GET txpanded the scope of the
transfer of turbine technology. These agreements endured both the Arcos
break of 1927 and the notoriety surrounding the arrtat and expulsion of six
Mctropolitan-Vickers engineers in 1933 on grounds •"f economic espionage
and sabotage.
Steam turbines had been made in the Pctrograd M: tul Plant (later renamed
the Stalin) early in 1906. By 1914 there were seven plants in Russia manu-
facturing naval turbines and one manufacturing stationary steam turbines;
after 1917 the Petrograd plant alone continued working, but only on repairs
to existing turbines and the manufacture of spare parts, .^either this nor any
other Soviet plant had experience with high-power hydraulic turbines.
To summarize, by the end of the decade the Soviet electrical industry had
undergone a complete overhauling in methods of production, variety of goods
produced, and quantity produced. This had been achieved in the face of
disaster by restoring the prerevolutionary technical personnel, injecting
foreign managerial and engineering personnel and foreign-developed technol-
ogy into the most important of the prerevolutionary plants. Whereas in
1 913 the industry value of output was 45 million rubles, in 1924-5, one year
after the introduction of foreign technology, it was 75 million (19 13) rubles,
and by the end of the decade more than 200 million (1913) rubles. Imports
of electrical equipment increased from 7,592 tons (valued at 14 million rubles)
in 1925-6 to 26,465 tons (valued at 45 million rubles) in 1927-8. Eighty
percent of these imports were electrical machinery and high-tension apparatus
(i.e., capital goods).
The variety of goods also expanded under foreign guidance. Steam turbine
generators of up to 10,000 kw, hydro-turbine generators of up to 8,750 kw,
transformers of up to 38,000 volts, high-voltage armatures, oil switches, and
mercury rectifiers were being produced by the Electro-Technical Trust and
Elmashstroi by the end of the decade. Production of electric light bulbs was
modernized and arrangements had been made with foreign firms to introduce
the manufacture of mercury lamps, automatic car headlights, and pocket
lights. The Low-Tension Trust was now producing radio transmitters and
receivers, although large stations for international communications and
" Correspondence Relating to the Arrest of Employees of the Metropolitan-Vickert
Company at Moscow, Command Paper 4286 {London: H.M.S.O., 1933) pp. 2-3.
Electrical Equipment Manufacturing Industry and Goelro zo i
propaganda were built by RCA in the United States.** Watt meters, X-rayapparatus, automatic telephones, and exchanges were being built in theU.S.S.R.
Research establishments, including the State Electrical Engineering Experi-mental Institute, were also established, complete with 'unique' equipmentmanufactured by the General Electric company.*4
All trusts and plants within the trusts received foreign technical assistance.All technological progress resulted from a transfer from West to East. Further,rather than just restoring and modernizing the prerevolutionary plants, theforeign associates introduced the latest innovations from Western laboratories—sometimes before they had been utilized in the Western country of origin.
SOCIALISM IS ELECTRIFICATION; THE GOELRO PROGRAMThe most important customers for electrical machinery are power stations,
utilizing hydro, peat, and coal fuel methods of energy conversion.The original Goelro program outlined by Lenin demanded 100 power
stations as the basis for a socialist economy. This was revised downwards in
the Zinoviev speech of January 1 921 to 27 stations, and followed by amplediscussion but little concrete action.*6 Two years later only three projectswere receiving any attention, and that was rather desultory. Studies inheritedfrom the tsarist period included one which had been expanded into theDniepr project, but a few scattered site borings comprised the total achieve-ment. The general feeling was that Dniepr should be offered as a concession.Volkhov, Svir, and Nizhni-Novgorod were at various points of early construc-tion, but three years after the announcement of Goelro, the program hadhardly moved.
The Svir hydroelectric project, north of Leningrad, ran into almostinnumerable difficulties, which stretched its construction period from 1920well into the 1930s. The fifteen-month preliminary investigations of theproject were handled by an American engineer, Emegess, employed by the
" It should be clearly noted that RCA pointed out the propaganda possibilities tothe Sstate Dept, The latter described these warnings as 'theoretical' (316-141-714tt seq.). See also chap. 18.
tit" Monogram, November 9, 1 943 ; and Bank for Russian Trade Review (January 1 929),
" lutek <?U".,<M1' Vibourg
?°,V\S 'State DeP«- April u, 1911: 'Confidents
Although Soviet papers contain little on electrification accomplishments and onlyreiterate bombastic plans the truth is that slight progress has been made due to thelack of electrical goods, technical supplies and skilled labor.To date most energy hasbeen devoted to collecting material and making paper plans. The colossal Svirelectric station has not materialized, and is no further advanced than six months agoexcept that a small and inadequate quantity of building materials has been col-
202 Western Technology and Soviet Economic Developtabtt, i^t^-1^30
Cooper Company, also working on the Dniepr proj ect.47 VaBous otherAmerican
(J. G. White Company) and Swedish (Karlsrads Mechaniska A/B and Vatten-
byggnadsbyran A/B) construction companies were involved in various aspects
of the Svir darn and site construction. The generators were supplied by
Metropolitan-Vickers and the turbines by Werkstaden Kristinegarnm A/B
of Sweden. The project was finally completed in 1933 at an estimated cost of
$500 per horsepower compared to an average cost of approximately $100
per horsepower in the United States.''8
At Volkhov the construction process was also extremely stow. Graftio, the
engineer in charge, used Swedish engineers to implement Swedish construc-
tion methods.40 The 10,000 h.p. turbines from Sweden arrived at the end
of 1923, and date of completion was set at 1926. By April 1927, despite
extensive foreign assistance from A.S.E.A. and Metropolitan-Vickers, the
Volkhov station was still not fulfilling expectations. It was described as
'irregular, capricious and unreliable.' so The problem was in the use of genera-
tors from two sources; four from A.S.E.A. and made in Stockholm, and four
made at the Electrosila works in Leningrad with its mixed history of technical
assistance. The Electrosila generators contained materials of different speci-
fication from those in the Swedish generators, and problems arose when
the eight generators were operated simultaneously.51
The high-tension insulators (Hewlitt type) for the 130 kilometers of trans-
mission lines to Leningrad were manufactured by the General Electric
Company and the Thomas Company in the United States. The total cost of
the project was estimated by Klemmer at 90 million rubles, of which 6 million
was spent on imported equipment and technical assistance. In return for this
substantial investment, the plant did not generate more than 20,000 kw in
192752 or about seven times the cost per kilowatt of capacity constructed at
the Zages project. 53
The world-famous 650,000 h.p. Dniepr project, supervised by Col. Cooper,
builder of Muscle Shoals in the United States, used four 80,000 h.p. turbines
manufactured by the Newport News Shipbuilding and Drydock Company,
linked with vertical 77,500 kw. General Electric design generators. The total
47 limcgcss made a report to the U.S. State Dept. concerning the methods used by theSoviets to keep Col. Cooper in ignorance of the true conditions in Soviet Russia.
*' Emegess Report. (316-139-128.)"
Ibid.
10 Ekonomicheskaya Zhizti, No. 85, April 1937." Ibid.
S! Klemmer, op. cit., pp. 16-7." Sec table, p. 205.
Electrical Equipment Manufacturing Industry and Goelro 203
value of $2.5 million was granted by G.E. on five-year credit terms. CooperCompany engineers were sent to Russia in the summer of 1926 to make a
feasibility study for this project. They examined the prerevolutionaryconstruction plans and the structural and geological problems of the site.
In particular, they raised questions concerning labor supply, raw materials
and transportation, all of which were considered inadequate for the size of theproposed project."
The initial study was followed in October 1927 by the visit of ProfessorE, G. Alexandrov, Chairman of the Technical Council and Vice-President ofDnieprstroi, to the United States, where he visited construction machineryplants and raw material supply and water power projects. He especially notedoperating principles and types of materials used. Alexandrov expressed thehope that the 'best methods' could be applied at Dnieprstroi. By this timesome $1.5 million in equipment orders had been placed in the United Statesfor Dniepr. This equipment included dump trucks, steam shovels, pneumaticdrills, forges, and similar construction items. Credit terms obtained variedbetween one to one and a half years."
A construction agreement was then made with both the Cooper Companyand Siemens A-G of Germany to undertake supervision of the dam construc-tion. Cooper reported on the project to the American section of the All UnionWestern Chamber of Commerce which was a Soviet institution with functionsrather different from those of Western chambers of commerce. The damwas to be considerably larger than any existing dam in the world, exceedingin volume the Nile Dam by 18 percent and the Wilson (Hoover) Dam by10 percent. The electric power station was designed to yield 2.5 billion kwhat a cost equivalent to this supply of electrical energy in the United States. AsEkojwmickeskaya Zhizn phrased the goal, 'The United States is a country inwhich electrical energy is used wherever possible. The U.S.S.R. must alsobecome such a country.'" The ultimate capacity was designed to be 650,000h.p. The dam itself was 51 meters high and 720 meters across. The first five
generating sets, each with Francis-type turbines and 77,500 kw. generators aswell as the outdoor equipment (transformers, oil circuit breakers, switch-boards, etc.) were manufactured and installed by General Electric. Equipmentused in construction was imported from the United States and Germany. Twomassive stonecrushers were specially made in Germany. Even the equipmentfor the dining halls, to seat 2,000 workers at one time, was imported. The onlypurely Soviet work traced was the longer of the two bridges which were built
" Pravda (Moscow), No. 171, July 28, 1916." Ekonomickakaya Zhizn, No. 237, October 16, 1027." Ekonomicheskaya Zhizn, No. 215, September i$, 19*8.
204 Western Technology and Soviet Economic Development, xgif-iggo
Table 11-6 TECHNICAL ASSISTANCE AND EQUIPMENTSUPPLY IN THE GOELR0 PROGRAM, 1920-30
Project
Electrical Equipment Manufacturing Industry and Goelro 305
over the Dniepr; this was of short-span construction and, according tobcneffer, 'entirely Russian work.'"The Zemo-Avtchalin hydroelectric development (Zages) at Tiflis, in the
Caucasus, was begun in i 9m and completed in 1927. The project engineerwas Russian (Melik-Pashaev) and the supervising engineer Armenian (Chi-chmadze) but 'foreign consultants' were used in some stages." The stationdeveloped a useful capacity of 40,000 kw, compared to 60,000 kw at Volkhov,and an annual output of 150 million kw hours, compared to 225 million kwhours at Volkhov." Four turbo-generators were manufactured at the Stalinplant (formerly Petrograd Metal) with German assistance and by Electrosilam h assistance from A.S.E.A. Cost of construction was « million rubles:well ln excess of the original estimate of 6.9 million rubles but substantiallycheaper than Volkhov both in terms of cost of construction per kw of capacityand per kw hour of electricity produced. (See table 1 1-7.)
Tabl'JZZl„
COMPARATIVE CONSTRUCTION COST ANDENERGY COST AT THE VOLKHOV AND ZAGES PROJECTS, 1927
Volkhov Zages
cS^rtThotPCr^ °f »""* »«• «*** soo nh]e&
3-S kopecks ,.3 kopecks
Source: Ekonomickeskaya Zhizn, No. 143, July 1937
The textile complex at Ivanovo-Voznessensk, claimed as the largest in theworld had a peat-burning power station erected by Krupp." The status ofthe other projects is listed in table 11-6.A few large foreign companies undertook the greater part of the construc-
tion, installation, and equipment of these power stations. Metropolitan-Vickersobtained the lion's share of the work. A list of the most important ordersreceived by the company in this period includes three turbo-alternator setsfor Krasny Oktiabr (Leningrad), two of which were 45,000 kw units; all theswitchgear and transformers for Shatura and Nizhni-Novgorod; large-capacity
and th/rcforeUX of "cording *U™^ USUa"y n°ted M bein* ~«P<™*'
" 1NRA, p. 276.
Jun^f^"8 dCm Te"ilb« irl< v»n Iva„ov -VozneSse„sk ,. Berliner Tagebhtt,
206 Western Technology and Soviet Economic Development, igij-igjo
turbo-generators for Moges (Moscow), Baku, Chelyabinsk, and Ivanovo-
Voznesscnsk; medium-capacity generators for Shterovka and the Third Cotton
Trust; smaller-capacity turbo-gencrators for Irkutsk, Novo-Sibirsk, andothers; and all the switchgear equipment for Volkhov, the oil-well electrifica-
tion program for the Baku area, and the Moscow-Mytishe electric railway.61
To give a comparative estimate of the importance of the Metropolitan-Vickerscontribution, the turbo-generators supplied for the Krasny Oktiabr plant, in
themselves only part of the generating equipment, equaled the total generatorcapacity already produced in the U.S.S.R. at the time (90,000 kw versus
92,600 kw); and Metropolitan-Vickers was only one of a number of foreign
firms supplying similar equipment. Further the existing generator capacity
of the U.S.S.R. was all being produced with foreign technical assistance.
In brief, all electric energy stations built in this period, whether coal, peat
or hydroelectric, were based on Western technology. Station equipment waseither supplied directly from abroad or, if of Soviet construction, was built
in a plant with Type III technical assistance. The Svir, Shatora, Shterovka,
and Ivanovo plants, for example, utilized generators built abroad and installed
by Western engineers in the Soviet Union. Volkhov and Dniepr used gener-
ators made abroad and in the U.S.S.R. Similarly, turbines were either
manufactured abroad or in Soviet plants with Type III technical-assistance
agreements. A larger selection of foreign companies was utilized in this areaof technology: Wcrkstaden-Kristinegamm and A.S.E.A. of Sweden, New-port News and General Electric of the United States, Krupp of Germany,Metropolitan-Vickers of the United Kingdom and Brown-Boveri Companyof Switzerland.
THE PROCESS OF HYDROELECTRIC TECHNOLOGYACQUISITION
In 1925 the Leningrad Metal Plant manufactured a 4,500 h.p. hydraulic
turbine for the Zages project. This was the first turbine produced after the
Bolshevik Revolution, and a copy of three turbines imported for the purposefrom Germany.* 2 In the following year the plant produced a second turbine:
a 1,500 h.p. unit for the Leninakcn hydro project in Armenia. These wereproduced with A.E.G. technical assistance. In 1927 an agreement was madeto construct Metropolitan- Vickers turbines under license and with UnitedKingdom technical assistance; thus 'the manufacture of big Francis turbines
(for the Dzoraget and Rion stations) was mastered in the courseof 1927-30.' 03
" Dank for Russian Trade Review, March 1929, p. 15." INRA, p. 276." Ibid.
Electrical Equipment Manufacturing Industry and Goelro 307
In 1927 the Electrosila plant in Leningrad (formerly Siemens A-G)manufactured four vertical generators for the Zages project: the first everproduced in the Soviet Union. This was followed by an order for four genera-tors for the Volkhov project. These to be coupled with four Swedish madeA.S.E.A. generators. There was a further order for four generators for theDniepr project, to be coupled with five General Electric generators. Electrosila
had assistance agreements with A.S.E.A. and the International GeneralElectric.
The acquisition process is now clear. There was a primary stage whengenerators and turbines were both imported and installed by foreign engineers.This was succeeded by the acquisition of foreign technical assistance and bythe use of plants inherited from the tsarist era. A specific technology wasestablished with imported equipment and technical designing, supervisory,and engineering skills. Orders for capital equipment to modernize the plantsofthe electrical trusts were dependent upon the granting oftechnical-assistance
contracts. Normally the Western company was glad to donate the technical-
assistance aspects to acquire the order for the major installation.
Substitution of domestically produced machinery for imported machinerythen followed. In hydroelectric projects, several installations utilized bothequipment manufactured abroad and equipment domestically produced withforeign assistance. The technical advantages were dubious, but the educationalaspects were undeniable. Comparative data on operating performance wasgenerated and found useful as a check on the efficiency of domestic produc-tion. The final stage was reached when only domestically produced equipmentwas used, with or without foreign assistance. In hydroelectric projects thisdid not occur in the 1920s.
Concurrent with the progress of import substitution, there was increasingtechnical sophistication. Manufacture shifted from the small and simple to
the complex and large. The 'gigantomama' of the 1930s was an uncontrolledtechnical escalation of this nature. There is nothing in Marxist theory, in theabsence of the discipline of the market place or a theory of production anddiminishing returns, which dictates a cut-off point for either complexity orsize. By definition, the largest and the most complex is always the mostefficient, and only in the last few years has the assumption been challenged in
Soviet technico-economic literature. By the same measure we would expectto sec a degree of over-engineering in Soviet design. In the 1920s it was muchtoo early to see the flowering of this phenomenon, but the politico-economicstructure established in this period was destined to move Soviet industryalong this road. Volumes II arid III will pick up and trace the threads fromthis inauspicious starting point.
208 Western Technology and Soviet Economic Development, 1917-1930
It is also interesting to note that many of the associations described here
for the 1920s have continued uninterrupted to the present date. Karlsrads
Mechaniska Werkstad A/B had a contract for the Svir project in 1923. In 1963
the same company completed a paper mill, and in 1964 a pulp mill. This
long-term association is not at all uncommon. The tiansfer process is still
underway.
CHAPTER TWELVE
The Chemical, Compressed Gas, andDye Industries
NITROGEN FIXATION: BASIS OF A CHEMICAL INDUSTRYThe immediate chemical industry problem in 1921 was synthesis of ammoniafrom the elements: i.e., nitrogen fixation. This would eliminate use of Chileansaltpeter and facilitate production of calcium cyanamide needed for themanufacture of ammonia and cyano compounds.1
In 1921 V. I. Ipatieff, Chairman of the Chemical Committee of Vesenkha,made an extended trip through Europe to investigate purchase of these pro-cesses for use in the U.S.S.R. He found the best available process was ownedby I. G. Farben of Germany, who would not sell or grant a license to manu-facture in the Soviet Union. The remaining alternative was to install plantsfor production of calcium cyanamide to produce fertilizer in peacetime andammonia and nitric acid in wartime. Ipatieff investigated several processes,including those of Bayerische Stickstoff Werke in Germany, but was deniedaccess to the best-known plant, the nitrogen fixation plant at Oslo, Norway.8
A Commission on Fixation of Nitrogen was then organized and all availableforeign literature acquired. Research was started, not to develop a nitrogenfixation process, but to determine which of the foreign processes was the best.Domestic production of ammonia was recognized as the key problem, withspecial significance for military purposes, and this was takenup by both theWarTechnical Administration of Vesenkha and the Chemical Branch of Gosplan.The manufacture of nitric acid, also dependent on ammonia technology,
had also been ignored. This was a major gap in Soviet industry—particularly
1 V. I. Ipatieff, Life of a Chemist (Stanford: Stanford University Press, 1046),PP- 327-8- Ipatieff fled Soviet Russia and left us a first-hand account of the chemicalindustry, in tsarist and Soviet Russia. The Gumberg Papers at the State Historicalbociety in Madison, ^Visconsin, also contain data on Chemstroi.Ibid., p. 379.
2 to Western Technology and Soviet Economic Development, 191J-1930
Chart 12-1 THE TRANSFER OF NITROGEN INDUSTRYTECHNOLOGY TO THE U.S.S.R.
PROCESSES
CHILEAN
Guggenheim
BYPRODUCT
Koppeti
SYNTHETIC
Nifngen Engineering Corp
Ceialt S.A. .
Fauter A-G
CYANAMID1
Fttmk-Caro
NATURALSODIUMNITRATE
AMMONIA
NITROGEN-OXIDES
"fyTlTRiC:
V'acid.
Duponl
SYNTHETICSofilL'MN ITK A'I'E
XW Calcium, 'NITRATE
.h. A'rtipp A-G
POTASS! I '.M
NITIIATI-:
AMMONIUMNITRATE
EXPLOSIVES.Gtfa
Htrcutti Ptmttr Co.
RAYONS.T.it.P.
CALCIUM• CYAN-AMIDE
Frank-Csro
AMMONIUM SULPHATEStockholm! Superjosfal Fubrih A)B
AMMONIUM PHOSPHATESSuxklaSmi i'u(irr/cii/iir Fatrini AIB
AMM»N'II ;MCARHONATK
AMMONIUM CHLORIDE _^iiJDM
UREA
AMMON1ATEDSUPKFU'HOSrHATF.S :
Statkholmi Suprrfoifat FalnhtAlB
REFRIGERATION.:Bonis A-G .
*"
PERT I I. I 7. V. I! MIXTURES
'IVcJiiuilocv triiinfiTri'il from tin1 WVsl lu'tuvrn l<)\~ J!iJ IQ.10.
Source: Based on United States Tariff Commission, Report No. 114, Second Series.
Chemical Nitrogen (Washington D.C. 1 937)- With data from text of chapter
added.
Chemical, Compressed Gas, and Dye Industries 21
1
in the military sector (nitric acid is an essential ingredient in explosives
manufacture). The three available synthetic ammonia processes available were
the Cloudt in France and the Casale and Fauser in Italy. Ipatieff selected the
Casale process as the most suitable; it was not too expensive and a small
plant (20,000 tons per year) could be readily installed. A Soviet commissionwas dispatched to Italy; the final arrangement was for a i6,ooo-ton-capacity
plant built by the Italian company at Dzerdjinsky in 1927. Russian engineers
were trained at Casale Ammonia S-A in Italy, and Italian engineers built
and initially operated the Dzerdjinsky plant. Essentially the only differences
from the I. G. Farben process, which had been refused, were in the type of
catalyst and the operating pressures used.
For a solution to the calcium cyanamide problem, Ipatieff visited Bayerische
Stickstoff Werke and Borsig A-G in Germany and the Superfosfat A/Bin Sweden. The Swedish method, obtainable on more advantageous terms,
was adopted, and several plants were ordered from Sweden. This was the
basis of the Soviet superphosphate industry.3
SYNTHETIC PRODUCTION OF AMMONIA IN THEUNITED STATES*
The technical revolution brought about by synthetic ammonia was felt
throughout the heavy chemical and allied industries, from agriculture to
explosives. The opening of a single synthetic ammonia plant in Niagara Falls
utilizing an atmospheric nitrogen process cut the price of ammonia by 50percent in one week. Cheaper ammonia stimulated development of refrigera-
tion, established effective competition against the Chilean saltpeter monopoly,replaced sodium nitrate in the chamber process for the manufacture of sul-
phuric acid, and introduced an entirely new method of nitric acid production.
Several synthetic ammonia processes were developed simultaneously in
Europe and the United States. General Chemical, a subsidiary of Allied
Chemical and Dye, spent between $4.5 and $5 million on research anddevelopment of the Haber process, followed by an investment of $125 million
in the Hopewell plant, opened in 1928. The Mathieson plant, using the
Nitrogen Engineering process, was built in 1931 and followed by another in
Niagara Falls using the Casale process, built by Ammonia Corporation of
New York. In 1924 Dupont acquired American rights to the Claude process
and in 1927 acquired American rights to the Casale process and then proceededto improve both processes. At the end of the decade the effectively competing
s Ibid,, p. 426-8.4 Based on W. Haynes, American Chemical Industry (New York : Van Noatrand, 1 948),
IV, 85.
213 Western Technology and Soviet Economic Development, igi^-zgjo
processes in the United States were those of the Dupont Company (Claude-
Casale) and the Nitrogen Engineering Corporation (Haber-Bosch). It was not
until 1936, after the expenditure of more than S24 million on development of
synthetic ammonia, that net operating results began to show a profit.
It was American technical ingenuity and originality in developing techniques
for handling very great pressures and temperatures which enabled successful
replacement of early methods of ammonia manufacture and introduction of a
much cheaper method. Research was partly financed by the Army OrdnanceDepartment, the Department of Agriculture, and a special Congressional
appropriation of $i8s,ooo.6The value of the developed technology is suggested
by the payment of Jf 1 .25 million for Japanese and Chinese rights to the Claude
process. The reader may compare this figure to the 8150,000 received from
the Soviet Union for similar rights.'1
MANUFACTURE OF NITRIC ACID AND THE DUPONT COMPANYThere was a small production of nitric acid in tsarist Russia. In 1920 eight
small plants produced 360 tons per year. During the 1920s major technical
advances were made in the West, and by the end of the decade three companies
were offering nitrogen fixation processes for the manufacture of nitric acid.
The Soviets found themselves in an excellent bargaining position. Dupont,
Nitrogen Engineering, and the Casale Company were competing suppliers
with more or less equivalent processes. The Soviets used their monopsonistic
power to drive prices down from opportunity costs (probably well in excess
of $100 million when one considers the absence of input suppliers in the
U.S.S.R.) to a mere $150,000—the price ultimately paid to the DupontCompany after a number of such plants had been erected. Only if the three
Western owners of fixation processes had merged into a joint bargaining unit
could the price extracted from the U.S.S.R. have approached Soviet oppor-
tunity costs. It appears that from the strictly technical viewpoint the Dupontprocess had a slight competitive product edge by virtue of the 120 lb,-per-
square-inch pressure used, but this was insufficient to offset Soviet buying
power.'
In early 1929, negotiations began between Chemstroiand Dupont concern-
ing the sale of their ammonia oxidation process and nitric acid technology.
Dupont had expended over 827 million developing the process. 6 This was in
addition to the substantial investment made by the earlier French and Italian
1Ibid., p, 90,
* See page 213.
' F. D. Miles, Nitric Acid; Manufacture and Uses (London: Oxford University Press,
1 961), p. 34.
" Dupont: The Autobiography of an American Enterprise (Wilmington: Dupont,1952). P- 95-
Chemical, Compressed Gas, and Dye Industries 213
owners of the process. To attempt to recoup anything like this amount fromthe Soviets would have been naive; there were other processes available andthe alternative always existed that the Soviets could develop the processthemselves. For Dupont, any return over marginal cost of supplying the
process was advantageous. However, marginal costs were zero as, accordingto the agreement, the U.S.S.R. paid the expenses of both the Soviet and theDupont engineers. Consequently the $150,000 fee to Dupont was a return onresearch and development investment and a 'windfall' gain to the DupontCompany.
In requesting advice from the State Department, the Dupont concernargued that the process was neither secret nor covered by patents, that theend use of nitric acid is the manufacture of fertilizer, although it is the basic
fundamental raw material for dyes, celluloid, photographic materials, medicineand artificial silk." Dupont argued that if they did not supply the process it
could be bought elsewhere, and that several plants had already been erectedin the U.S.S.R. by Casale and Nitrogen Engineering of New York. Further,the company argued that there was nothing exclusive about the Dupont process
:
'Our superiority. . . is based entirely upon the economic advantages of our
engineering design.' 10
The copy of the agreement from the State Department files indicates
that Chemstroi
. . . (wishes) to use in Russia the Dupont process for the oxidation ofammonia and to place at its disposal sufficient data with respect to thedesign, construction and general information as to permit the satisfactoryoperation of such plants ... the Company shall serve the RussianCorporation in an advisory capacity and furnish upon request services ofengineers and chemists so as to accomplish the purpose of the contract.
The agreement further stipulated that Chemstroi might use the Dupontprocesses for the oxidation of ammonia to manufacture 50-65 percent nitric
acid and that Dupont agrees
... to place at the disposal of Chemstroi sufficient data, informationand facts with respect to the design, construction and operation of suchplants as will enable Chemstroi to design, construct and operate ammoniaoxidation plants. . . .
" In 19*7 more than two-thirds of U.S. nitric acid was being used for explosives.Dupont said the acid was 'too weak' for explosives manufacture. However, thebtate Dept. appears to have accepted this rather surprising statement.
" Letter from Dupont to U.S. State Dept. (316-139-573). The Dupont-Cherastroiagreement is m the U.S. State Dept. Decimal File, 3 16-139-370. This agreement iswell worth reading from one viewpoint alone: the remarkable two-facedness of theSoviets. They can call themselves a 'Russian Corporation, ' etc., to give the Westerncompany the impression it is dealing with feltow businessmen, and then present theDupont work as a 'feat of socialist construction.'
214 Western Technology and Soviet Economic Development, 19^-1930
Dupont was therefore to act in an advisory capacity in the construction and
initial operation of all such plants. The fee for the use of the process was $10
per metric ton of yearly rated capacity for the first plant and $10 per ton on
subsequent plants, until the total fee was $50,000. *a addition, a flat fee of
$25,000 per plant was payable until the total fees paid amounted to $150,000.
As has been pointed out, this was rational profit-maximizing action for Dupont,
but hardly for the Western world.
Chemstrot was allowed to request reasonable services of Dupont engineers
and chemists, their salaries and expenses to be paid by Chemstroi. In the
case of the first plant Dupont provided construction engineers and chemical
engineers to build and start up the plant and train sufficient local personnel
to continue operations. In all, five such plants were built. Permission was
granted by Dupont to enable Chemstroi to pass on the technical information to
other state organizations (a similar request caused R.C.A. some amusement;
their patents and processes were being sequestered either way).11 In addition,
Dupont agreed to accept Chemstroi engineers and technicians in their United
States plants for training.
Table 12-1 SOVIET ACQUISITION OF BASIC CHEMICALTECHNOLOGIES, 1925-30
Technology
Nitrogen fixation
Calcium cynamide
Nitric acid
Sulphuric acid
Western Process Soviet Plant
Nitrogen Engineering Corp(modified Haber-Bosch.)
Nitrogen Engineering Corp(modified Haber-Bosch)
Cassile Ammonia S-A. (Italy)
Fauser (Italy)
Stockhotms Superfosfat
Fabriks A/B (Sweden)Dupont Company
Bersol (Russo-German Company)Hugo Petersen (Berlin)
Lurgie Gesellschaft fur
Chemie und Hiittenwesen m.b.H.
Bererniki (1929-1931)
Bobriki (1949-1931)
Dzerdjinski (1927)Gorlovka (1930)Karakliss
Five plants (one erected
before 1930)Samara
N.A.Technical assistance
Sources: t. V. I. Ipatieff, op. cit.
2. U.S. State Dept. Archives.
3. German Foreign Ministry Archives.
The first Dupont plant for nitric acid was built at Chernorechenski, near
Gorky. The capacity of the combine was 115,000 tons of superphosphates a
year and included plants for the manufacture of ammono-phosphates, calcium
carbide, cynamide, and nitric and sulphuric acids. Alcan Hirsch, a New York
See below, page 300, n. 18.
Chemical, Compressed Gas, and Dye Industries 215
consultant, was chief engineer for Chemstroi and supervised construction of
the combine by Western companies. Hirsch comments that the nitric acid
plant was built according to the Dupont specifications and 'incorporates
apparatus made of nickel-chromium steel and all the equipment is of American
manufacture throughout.'"
As has been pointed out, 'turn-key' purchases were also made fromDupont's
competitors, so that the Soviets ended up in a better position than any of
their suppliers independently.They had the sum of Western technical experi-
ence within two to three years of perfection of that process. In other words,
the Soviet Union was able to acquire a greater knowledge of the processes
involved in nitrogen fixation, nitric acid production, and other areas by
expending a microscopic amount of money. An agreement covering the produc-
tion of ammonia from coke was made with Nitrogen Engineering of New York,
and another contract with the same company covered construction of a $10
million synthetic ammonia plant. Yet another contract with NEC established
a ten-year technical-assistance agreement for all NEC-Haber-Bosch tech-
nology. 13
SOLTKAMSK POTASH DEPOSITS
Phosphatic fertilizers, either from bones or from phosphate rock, were not
produced in any quantify in prerevolutionary Russia. Nutter gives a total of
only 55,000 tons for 191 v Toward the end of the 1920s, production of both
natural and rock phosphate fertilizer jumped substantially to a total of 484,000
tons.
The substantial increase in natural phosphate output in 1929-30 may well
be associated with the kul.il-. extermination program and massive slaughter of
cattle. Natural phosphate is bone meal.
Increase in rock phosphide output stems partly from development of the
Khibini apatite deposits en the Kola peninsula. These deposits of apatite-
nepheline contain about 2S-32 percent phosphoric acid. One of the major
11 Alean Hirsch, Industrialized Russia (New York: Chemical Catalog Company 1934),
p. 83. This phrase has a much deeper implication than first reading might convey.Let the reader ask the question, which plants in the U.S.S.R. were able to producestainless (i.e., nickel-chrome) steels in 1927? There was one, and that used the old
hand-mill process and was unable to turn out the larger sheets of very different
quality used in chemical engineering. In other words, if the apparatus had beendenied, the Soviets would first have had to acquire a stainless steel production unit.
Alcan Hirsch was a most effective agent for the transfer of chemical engineering
technology. He was quite sympathetic to the aims of the Bolshevik Revolution.
After the extermination of the kulaks, the show trials, and the forced labor construc-
tion of industry (all of which he witnessed) he could still write in 1934: 'Soviet
Russia has not as yet reached unprecedented eminence in the arts, science or industry
although I believe that sociologically it is far ahead of the rest of theworld.' (P. 273.)
11 Vneshtorgizdat, op. est., p. 226; and Hirsch, op, cit., p. 78.
216 Western Technology and Soviet Economic Development, 191J-1930
technical difficulties in initial development was presence of nepheline, whichhad to be separated out. A concentrating and refining plant was built, with a
capacity of 250,000 tons ofapatite concentrates per year (more than the increase
in output from 1928-9 to 1929-30). The presence of nepheline was overcomeby a flotation process, utilized by the first such nepheline treatment plant in
the world, designed and built by General Engineering Company of Denverand utilizing all United States equipment. The by-product nepheline wasused in the manufacture of glass, ceramic wares, pottery, porcelain, andelectrical insulators. In brief, the by-product became useful in many other
industries, all with their own technical-assistance agreements with foreign
firms.14
In 1924 there was a production crisis in the largest potash production
operation, Kubtrestpotash, which badly missed its production targets althoughthe 'mixed' trading company Wostwag had an agreement to take its complete
output for export. 1* Two years later, prospectors found extensive deposits of
potash (sylvanite and carnallite) in the Solikamsk district while drilling for oil."
It was decided by Vesenkha to favor development of Solikamsk over Kuban.The report of the prospecting expedition found its way from the Geological
Committee of Vesenkha to the State Department in Washington, D.C." Thedeposit was offered as a concession to Lyman Brown, previously AmericanRelief Administrator in Russia. He operated on the fringes of concession-
promotion of Soviet opportunities. By August 1927, Dillon, Read andCompany was in process of raising $30 million to finance the development of
Solikamsk and an associated chemical combine and oil pipe line. The fund-
raising was killed by unilateral action on the part of the State Department;the Soviets then decided to start development with their own resources,
utilizing Western skills under Type III assistance agreements.
A potash trust was formed and an agreement concluded with the Germancompany, Deilmann Bergbau und Tiefbau Gesellschaft, of Dortmund, to
design the mine and plant at Solikamsk. 18 The resultant Berezniki-Solikamsk
complex included a salt refinery to produce 160,000 tons of stone salt annually,
14 Amtorg, op. cit., IV, No. 6, p. no.14 Ekonomicheskaya Zhizn, No. 115, February 19, 1914." Much was made in the Soviet press about this oil-potash discovery {see Torgovo-
Promyshtennaya Gaseta, No. 99, pp. 107-9 and 118, for 1929). This was, however,an extension of a field developed before 1917 (See A. A. Trofimuk, Uralo-Povolzhe-novaya neftiania baza S.S.S.R. (Moscow: Gostoptekhizdat, 1957), pp. 144-5.
" The 3 1 -page Provisional Report includes the drill core logs. These suggest a verysubstantial deposit of potash salt (316-138-352). The Soviets must have neededWestern technology badly in this area, to allow out the drill logs. At about the sametime they sentenced the representatives of a Swedish company to eight years in jailjust for making a market survey of dairy equipment requirements.
18 Vncshtorgizdat, op. tit., p. 22.
Chemical, Compressed Gas, and Dye Industries 217
a plant to procure 1.2 million tons of potash, chemical plants to utilize thepotash, a brick plant, and other industries. Two shafts were planned for themine
:one was sunk by the trust to a shaft depth of 35 meters, and the main
shaft was sunk to 260 meters by the German company, Gefrierschachbau,using freezing methods of sinking. The nature of the overburden requireduse ofmethods beyond Soviet capabilities at the time." The degree of technicaluncertainty felt by the Soviets is probably indicated by the fact that one yearafter development was started the project was still being offered as a concession.The program finally involved some thirty German engineers. The first mine,with a capacity of 1.5 million tons of ore, and the first concentrator, with acapacity of 1.2 million tons, were completed in 1933.
MANUFACTURE OF SULPHURIC ACIDSulphuric acid capacity was modernized with the help of German firms.
Lurgie Gesellschaft fur Chemie und Huttenwersen rn.b., of Frankfurt,provided assistance for construction of a sulphuric acid plant with a dailycapacity of 80 tons of monohydrate. The company also provided equipmentand started operations for the Soviets. General technical assistance for sul-phuric acid production was provided under another agreement, with HugoPetersen, of Berlin. 80
Bersol (the Russo-German company) was primarily interested in develop-ment of poison gas facilities, but was also instrumental in establishing factoriesfor production of potassium chloride, sulphuric acid, superphosphates, andother chemicals.21
Development of an acids capacity is an essential prerequisite to plasticsproduction. While nitric and sulphuric acid production was under develop-ment, moves were being made to acquire a plastics base. EkonomkheskayaZlthsn of November 30, 1926, reported that a concession agreement had beensigned with Societe Industrielle de Matieres Plastiques (S.I.M.P.) for produc-tion ofcinema and photographic film and articles made from celluloid. S.I.M.P.was granted a factory at Podmoskovnia, just outside Moscow. The Frenchcompany repaired this facility and started production in 1927. This wasfollowed by a joint American-German concession in early 1928, under whicha plant was built to produce noninflammable film, artificial silk, and alsopaper, utilizing a patented process based on the use of corn stalks. TheGerman participant was Dcutsche-Russische Film Allianz A-G (Derufa), andthe American was the Euroamerican Cellulose Products Corporation of New
» Ekonomkheskaya Zhizn, No. 86, April n, 1028; and A. Hirsch, op. cit.. p. 64.VneshtorgUdat, op. cit., p. 228.
11 Troyanovsky, op. cit., p. 836.
ai8 Western Technology and Soviet Economic Development, 1917-1930
York, represented by Montifiore Kahn (not the Albert Kahn firm with
Vesenkha agreements)." The patents were held by the New York firm which
"thought it best' not to enter directly, but through German intermediaries.
Investment amounted to $1.5 million, but little is known of the process
itself."
COKIi OVIiN BY-PRODUCTS
The Russian chemical industry was not insignificant in size before the
Revolution. The production of coke oven by-products, an important source
of chemicals, was well developed in tsarist times. Table 12-2 compares 1914
production of by-products with 1915 and 1926.
Table 12-2 COKE OVEN BY-PRODUCTS, 1914, 1915, AND 1926
TarAmmonia waterAmmonium sulphate
Sal ammoniaBenzolOils
Goudron
1914
486,700197,30069,000
64767
145,640201,700
1915
Chemical, Compressed Gas, and Dye Industries 219
Then for a period of some years no attempt was made to utilize coke by-
products, officially because Koksobenzol and Ukrchim questioned the right
of the Central Coal Industry management to concern itself with these pro-
ducts. Nothing was done while the dispute was in progress.28 The coke-benzol
industry was finally grouped under Koksobenzol. Of the twenty-two by-
products plants incorporated into the trust, fifteen were fully equipped and
had an annual aggregate capacity of 16,000 tons of benzol. Output in 1926
was a mere 145 metric tons. Before the Revolution, Russian coking had been
dependent on foreign coke-oven technology. The Donbas ovens installed
before World War I consisted only of Coppe and Piette systems." Although
about 800 ovens were available, output of coke was only 9,800 metric tons
for 1920, compared to 4.3 million metric tons in 1913. By 192a output
recovered slightly to 110,000 and in 1923 to 130,000 metric tons. This enabled
some attention to be placed on by-product recovery. 27 This recovery was
brought about as coal supplies found their way once again to the ovens, but
still only 4 percent of ovens were in production.28
THE RUSSIAN-AMERICAN COMPRESSED GAS COMPANY(RAGAZ)
Ragaz was a joint-stock company organized in January 1926 by the Inter-
national Oxygen Company of New Jersey and the Soviet Metalosindikat for
development of industrial gases in the U.S.S.R. Both parties held an equal
share, and it was agreed that the concession would last until 1941. It was
taken over by the Soviets in 1932.
Seven plants were established by Ragaz for manufacture of oxygen and
acetylene for industrial uses. This included locations in Moscow (Rostokin),
Sverdlovsk, Rostov on Don, and Baku. In addition, some seventeen welding
plants, three acetylene gas generating plants, and two special schools for
training welders were established at various points throughout the U.S.S.R.
The Moscow plant was opened in April 1927 and combined a special school
with facilities for production of oxygen and acetylene. The second plant,
which manufactured oxygen only, opened at Rostov in April 1928. The
others followed. The Ragaz company also held the contract for the welding
the Baku-Batoum and Grozny-Tuapse pipelines built between 1926 and
1929—the only pipelines built in the U.S.S.R. in this period,
Ibid., p. 288.
Coppe ovens were at Petrovsky, Mariupol, Donetz-Urevsky.Taganrog, and Stalino.
Piette ovens were at the Providence works. (316-131-949.)
Coal Age, January 8, 1915, p. 47.
Polish Foreign Ministry Report. (316-107-1262.)
aao Western Technology and Soviet Economic Development, 1917-1930
In 1928 Ragaz produced 345,000 cubic meters of oxygen and 66,500 cubicmeters of acetylene, and one year later 500,000 cubic meters of oxygen and77,000 cubic meters of acetylene—the total Russian production. After themanufacture of industrial gases and the establishment of welding schools,the next problem was manufacture of welding equipment to replace imports.This was done under a technical-assistance agreement in 1929 with a Germancompany, Messer A-G, of Frankfurt, specialists in the development of automa-tic welding equipment.29 and later with technical assistance from GeneralElectric for more advanced forms of welding equipment. 30
BASIC AND INTERMEDIATE DYESImported dyes came exclusively from I. G. Farben, under an arrangement
made in 1922 by a joint German-Russian commission containing I. G. Farbenrepresentatives. The latter agreed to maintain a warehouse in the U.S.S.R.and to import dyestuffs through Russgertorg (the mixed trading company).The commission also undertook to arrange for production of dyes through ajointly owned subsidiary—Igerussko. In return, the Soviets agreed to buyI. G. Farben products up to 70 percent of requirements of all coal tar dyes andmedicines. The arrangement lasted until 1929. It was hardly profitable forthe Soviets—only four intermediate dyes were manufactured by Igerussko,and the impression is gained that I. G. Farben was rather uncooperative!In return for a guarantee of gross sales, I. G. Farben was supposed to providetechnical assistance also to the chemical and pharmaceutical industries. Theagreement was not renewed. The Soviets complained they had not receivedany technical assistance, and the Farben company charged it had not receivedthe agreed share of the Russian market, 31 There is a distinct possibility thatI. G. Farben was shortchanged, as the Soviets made another dye agreementin 1924, a couple of years after the I. G. Farben agreement.
Before the Revolution, the German firm of Berger and Wirth A-G operateda large dye, ink, and paint manufacturing plant in Petrograd. This plantremained closed until 1924, although it was largely undamaged and nominallypart of the Chemical Trust." In February 1924, Berger and Wirth receiveda Type I concession agreement to reopen and modernize its old plant. Thecompany was required to install new equipment. During the second year, aproduction level of 390 tons of dyestuffs was required, and in the third year30,000 poods of printing inks, dyes, varnish, and paint. All technical advances
" Vneshtorgizdat, op. cit., p. 228.'" Monogram, November 1943, p. 18.31 Bank for Russian Trade Revietc, II, No. 1 (January 1919); and U.S. State Dent
Decimal File, 316-136-1421." Report, April 13, 1943, U.S. State Dept. Decimal File, 316-108-362.
Chemical, Compressed Gas, and Dye Industries mi
made by the company in Germany were required to be incorporated into theRussian plant. The agreement was to last for twenty-four years, at which timethe plant was to revert to the Soviets in good condition. A royalty of 15,000rubles per year plus 1 o percent ofsales was paid to the Soviets. Foreign workerswere not allowed to exceed 20 percent of the labor force. In 1929 the companyemployed about 120 with an annual output of two million rubles in a newand completely mechanized plant.83
In 1924, when Berger and Wirth started work,the State Aniline Trust,whichgrouped together the prewar dye industry plants, was not in good shape.Of eight plants forming the trust, two (the Derbenevsky in Moscow and theVladimirsky) were closed, two (the Butinsky and the Kinkshensky) wereabout to be closed, and four others (the Experimental, theTrigor, the KrasnyLutch, and the Central Laboratory) were on a heavily reduced schedule andworking for the Military Trust. In 1923, just before the Berger and Wirthagreement, the trust sustained an overall loss of 876,451 rubles on a minuteoutput. In 1913 the industry had produced 4,000 metric tons of syntheticdyes; in 1920-1 no output has been reported. There was then pressure onthe Soviets to conclude a concession agreement in this sector. The openingof the Berger and Wirth plant and the implementation of the I. G. Farbentechnical agreement through Igerussko had an immediate impact on produc-tion.
Table 12-3 DYE PRODUCTION IN THE SOVIET UNION
222 Western Technology and Soviet Economic Development, 1917-1930
Smaller concessions in this and allied fields were negotiated with the LeoBrand Company for production of cosmetics and with H. Brock for production
of laboratory drying and desiccating equipment.
GLASS MANUFACTURING INDUSTRY
The earliest technical assistance in glass-making came under the Rapallo
Treaty protocols involving a German group in the Kuban for production of
Glauber's salts, and the processing of these sulphates for use in glass manu-facture. Arsky said, ' . . . we must admit that we are quite incapable of doing
this ourselves just now or even in the next ten-fifteen years,' and then realisti-
cally he added that, "... the concessionaires will profit but it will bring
wealth to us and we must pay for that.'31
The only completely modern glass-making plant built in the decade of the
1920s was the Bely Bychok plate glass works, built in 1927 and equipped with
two ovens and twenty imported Fourcault-type furnaces and glass machines;
the complete plant cost $3.6 million. 35 Later, in 1927, four American glass-
machinery operators were hired and spent between one and two years in the
U.S.S.R. They toured Soviet glass-making plants and introduced Russian
workers to new American equipment as it was imported to replace the pre-
revolutionary machinery. 38
Simultaneously, a Ukrainian delegation arrived in the United States to
study American glass factories. The delegation was sent by the Porcelain and
Glass Trust of the Ukraine to study the application of American glass-making
machines and methods to the Ukrainian industry. The delegation visited
Pittsburgh, the Ohio River glass plants, Detroit, Buffalo, and Trenton, NewJersey. The delegation then announced that a large-scale plan of expansion
had been worked out which involved purchase of 'considerable machinery
abroad.' 3'
RESINOTREST
There was a rubber goods manufacturing industry in tsarist Russia. Theimportant components were the Treugolnik (Triangle) plants in Moscow and
Petrograd, combined by the Soviets into Resinotrest. Progress at these works
and the tsarist Bogatyr, Caoutchouc, and Provodnik factories (also incorporat-
ed into Resinotrest as Rubber Manufacturing Plants Number 1, 2, and 3)went very slowly. The latter three plants employed about 10,000 in 1923,
34 Krasnya Gazeta, September 3, 1921.** Amtorg, op. cii., II, No. 14, 5." Ibid., No. 15, 5.
" Amtorg, op. cit., II, No. 8, a.
Chemical^ Compressed Gas, and Dye Industries 223
but were only partly in operation, producing rubber galoshes and tire canvas.
The Petrograd Treugolnik plant employed about 10,000 and also produced
galoshes. The essential problems were those of raw materials, skilled labor,
and equipment.3*
The Petrograd Treugolnik plant was selected for improvement and
completely modernized in the mid-iQ20s. New activities were added, including
asbestos spinning and manufacture of brake linings, yarns, packings and similar
products. Its employment was boosted to 22,000 by 1928, and the companywas placed under management supervision of two American consultants.**
The establishment of a rubber-reclaiming industry was initiated by a
technical-assistance agreement between Resinotrest and the Akron Rubber
Reclaiming Company in 1930.40 The manufacture of rubber tires was initiated
with the aid of the Seiberling Rubber Company, which completely outfitted a
tire manufacturing plant at Yaroslavl and provided technical assistance in
operations."
CONCLUSIONS ON THE CHEMICAL INDUSTRY
During the decade the tsarist plants were restored and modernized and
the Soviets added a new dye-manufacturing plant (built by Berger and Wirth
under their concession agreement) and glass-manufacturing plant (from the
United States), expanded a Treugolnik rubber plant (with American assist-
ance), and obtained, through concession agreements, two foreign plastics
operations.
The most significant items were the transfer of technology for the manu-
facture of synthetic ammonia, and nitric and sulphuric acids, and the creation
of a compressed gas industry. The Dupont, Casale, and Nitrogen Engineering
processes were transferred to the Soviet Union and formed the basis for de-
velopment of chemical complexes under the so-called Five-Year Plan. These
complexes were the Berezniki-Solikamsk, where the NEC synthetic ammonia
plant was backed up by a Westvaco chlorine plant, and the Chernorechensky
complex designed on the basis of theDupont syntheticammonia and nitric acid
plants. A third complex was started at Bobriki (later Stalinogorsk) based on a
second NEC synthetic ammonia plant.12 Modernization of the basic chemical
" IS reported that Treugolnik 'refused' to join Resinotrest and had 'suffered accord-ingly' but gave no details. (316-10S-40S.)
" Ruykeyser, op. cit., pp. 209-10. The engineering section was run by a Germanengineer, Hertwig. (316-108-415.)
*° A. A. Santalov and L. Segal, Soviet Union Year Book, 1930 (London: Alien andUnwin, 1930), p. 357.
" Ibid., p. 359.*' Hirsch, op. cit., pp. 73-85.
224 Western Technology and Soviet Economic Development, igi^-ig^o
capacity, vital for industrialization, was essentially an achievement of foreign
enterprise; once again, indigenous Soviet technology is notable for its absence.
There is no trace in the engineering literature, Western or Soviet, or in archival
material, of any Soviet contribution, unless the 3 5-meter Solikamsk shaft
(which may have been a Soviet project) is counted as a technological contri-
bution.
CHAPTER THIRTEEN
Clothing, Housing, and Food Concessions
THE FORMATION OF TRUSTS IN THETEXTILE INDUSTRY
All large textile firms were nationalized by the decree of 1918 and manage-
ment placed in the hands of a Chief Committee of the Textile Industry. Thehome textile industry, based on hand work but without hired labor, remained
in private hands.
Available cotton spindles in 1920 totaled about seven million, but only
a little more than ten percent of these were working. In the flax industry, only
one quarter of 400,000 available spindles were working. Thus, although
spindle capacity was about the same in 1920 as in 1912, output was very muchless. This decline was the result of poor administration. Substitution of
'ignorant, sometimes unscrupulous Soviet officials' for the former owners, a
labor and fuel shortage, and inability to provide food for the workers were the
main causes. Rations were small and in irregular supply, and output waslargely restricted by time wasted in foraging expeditions.1
In late 1921, the textile industry was organized in a number of trusts.
These were the Tambov, comprising five factories producing coarse cloth;
the Simbirsk, comprising six factories producing coarse cloth; the MoscowTrust, combining thirty-two plants in the Moscow industrial district and
called also the Worsted and Finishing Trust; the Silk Knitting Trust, com-prising fifteen factories; the Bogorodsk-Glukov Trust, with ten factories;
the Orechovo, with ten factories; the Ivanovo-Voznessensk, with twenty-
seven factories, and the Vladimir with ten cotton-spinning plants. Later the
Petrograd district was organized as was the Linen Administration, comprising
seven factories in the Vladimir-Kostroma provinces. Altogether, the Linen
Trust comprised seventeen factories, including the large Kostroma plant.*
1 Wool and Textile World, July 7, 1921.1 Krasnya Gaseta, August 21, 1921. These figures arc somewhat different from those
226 Western Technology and Soviet Economic Development, igij-rgjo
Trustification was accompanied by the return of emigrants from the United
States: usually deportees with ideological sympathies with the Revolution,
In the summer of 1922, Petrograd Pravda reported that an 'American Depart-
ment' had been organized in the Thirteenth State Clothing Factory by a group
of deportees led by Comrade Summer and using methods described as the
last word in efficiency, in an effort to create 'a genuinely American attitude to
work.' 3 Another group of thirty-six American tailors joined the MoscowTailoring Combine. It is interesting to note how a comparatively small group
can affect a major organization;
[they] have raised its work to such a level of efficiency that the Combinehas become a model establishment . . . there are now six cutters to 150machines, whereas formerly there were fifty cutters when hand machineswere used.4
Demand for textiles was intensified by good harvests in the middle 1920s,
but the cotton crop was insufficient to meet the demand, so that imports were
necessary. In 1923-4, some 10 million poods of cotton was produced and
another 8-9 million, valued at 875 million, was imported from the United
States. The Chase National Bank advanced credits to the Textile Syndicate
for the purchase of this cotton, payment being collected against documents
in Moscow. In 1925, negotiations between Chase and Prombank extended
beyond the finance of raw materials and mapped out a complete program for
financing Soviet raw material exports to the U.S. and imports of U.S. cotton
and machinery.
Imports were still insufficient to meet demand, and in March 1926 most
cotton mills suspended work during Easter for an extended summer vacation.
Wool factories closed for most of the summer discharging half of their workers
and paying the rest at half rates.5 The crisis recurred in 1927. Again numerous
factories were closed. These supply problems were compounded by technical
problems. In the Kostroma plant, some 45,000 spindles were crowded into a
space designed for 20,000. These were of widely varying types, and about
three quarters were from thirty-five to sixty years old. Few repairs had been
undertaken since the Revolution, and spare parts were removed from machines
already in operation. The steam engines providing power dated back to 1880.
given by M. Dobb. In particular, Dobb places only 7 plants in the Moscow Trustinstead of 32, and quotes his source as Y. S. Rozenfeld, Promithlermaia Politika
S.S.S.R. (1926)- (Dobb, op. cit., p. 134.) The propaganda image of a 'destroyedindustrial structure' is hardly consistent with this comparatively large number ofplants ready for trustification.
Pravda (Petrograd), No. 175, August 6, tgaa.
'Emigrants Returning from North America,' Pravda (Moscow), No. 246, October31, 1922.
Isvestia, No. 191, August 23, 1925.
Clothing, Housing, and Food Concession: 227
As a result of this technical backwardness, substantial orders were placed
abroad for textile machinery, particularly in the United Kingdom andGermany. In 1927-8, the U.S.S.R. purchased 11,471 tons of 'machines for
spinning and twisting cotton, wool, flax, silk and bast fibres' from the UnitedKingdom alone. This may be compared with purchases of only 3,896 tonsof cars, trucks, and fire engines from the same source. Textile machinery wasthe largest single category of exports from the U.K. to the Soviet Union In
the years 1926 to 1928.*
THE RUSSIAN-AMERICAN INDUSTRIAL CORPORATION(RAIC) AND SIDNEY HILLMAN 1
Several small groups of American emigrants arrived in the early 1920s.
One, as already mentioned, joined the Moscow Tailoring Combine. Another,comprising 120 deportees with 200 sewing machines and other equipment,arrived a few months later.They took over an old sewing factory and established
the Third International Clothing Works.8
In 1922 a much more ambitious project, of major significance in modern-izing the textile and clothing industries, was begun. The project was initiated
by Sidney Hillman and the Amalgamated Clothing Workers of America,whose official position was as follows:
Russia has been pleading in vain with the rulers of the world for industrialcredit. It is the duty of labor to give Russia the credit denied her by theruling class. The Amalgamated has made the beginning with the clothingindustry. Let us be big enough to perform our duty fully and quickly,8
In an Izvestia article, Hillman pointed out that the aim of the unionwas not solely to establish a clothing industry in the Soviet Union: 'our aimsare much higher, we will begin with this industry and then grant credits to
the other clothing trusts.'10
* A. A. Santalov and L. Segal, Soviet Union Year Book, 1930 (London: Allen andUnwin, 1930), p. 331.
7 Board of Amalgamated Clothing Workers of America, Bibliography of the Amalgam-ated Clothing Workert of America (New York, 1 939). Section IV is a list of referencesto the Russian-American Industrial Corp.
* Pravda, No. 215, October 6, 192a.
* Amalgamated Clothing Workers of America, Sixth Bienniel Convention, Report ofthe General Executive Board (Philadelphia, May 1924), p. 90. Hillman was nottypical of American unionists. Samuel Gompers thundered long and loud againstSoviet treachery and brutality. He was wholly opposed to any form of economic ortrade links with the Soviet Union, {See S. Gompers and W. E. Walling, Out ofTheir Own Mouths: A Revelation and Indictment of Sovittism (New York, 1921).]Most present-day American unionists follow in the Gompers tradition. (See thespeeches of Meany, et al.) Comparison with the record of American businessmen(both then and now) is revealing: 3ee chaps. 17 and 18,
" Izvestia, No. 252, November 10, 1921,
228 Western Technology and Soviet Economic Development, 1917-1930
An agreement was drawn up between Vesenkha and a company formed by
Hillman and Amalgamated Workers called American-Russian Industrial
Workers Association (Artina) later changed to Russian-American Industrial
Corporation (known as RAIC or RAIK). The full text of the agreement was
given in the Nation and was intended to act as a model agreement for a series
of such worker enterprises, which were conceived as the equivalent of the
foreign commune in agriculture. 11 RAIC made three contracts with the Soviet
Union. The first was a general contract (November 1921) authorizing the
company to do business and to underwrite contracts made by the union
treasury. The underwriting included a minimum dividend and repayment of
principal if the corporation should be liquidated. The second agreement was
with Vesenkha and similar to the first. The third and most important was with
the All-Russian Clothing Syndicate and covered the first project: that of
operating the prerevolutionary clothing and textile plants.
RAIC was capitalized at Ji million, and stock was sold to union members
at $10 per share. The union appropriated $10,000 from the union treasury
to defray initial organization expenses and also bought $50,000 worth of stock.
RAIC was linked also to the all-Russian syndicate of the Sewing Industry,
which was founded in 1923 with a capital of 900,000 rubles. Sixty percent
of the syndicate was owned by various Soviet state institutions (Vesenkha
held eighty shares; Moscow Sewing Industry, twenty shares; Petrograd
Sewing Industry, 600 shares; Tartar Clothing Industry, twenty-five shares;
Nijhny-Novgorod Sewing Trust, five shares; Experimental Factory twenty
shares; and the Kharkow Sewing Trust, twelve shares). The balance of 40
percent was owned by RAIC. This was an arrangement similar to the General
Electric ownership of shares in Electroexploatsia and Electroselstroi. The
syndicate opened fifteen branches across Russia. This provided a channel for
the transfer of capital, equipment, management techniques, and skilled labor
from RAIC to the textile and clothing industries. 12
In June 1922, six clothing factories in Petrograd and three in Moscow were
turned over to the control of the joint board. It was then announced that the
new capital would go mainly for new and improved equipment, and in August
RAIC announced that the first shipment of spares for American machines
currently in use in the U.S.S.R. had been made. By late 1923 RAIC was
» 'Contract with Soviets', Nation, CXIV (June 1922), p. 728- The Nation was a very
useful vehicle for spreading news of the aims and work of these enterprises and
communes and in denying rumors (true or false). For example, when Americans
were trying to leave the Kuzbas Commune (American Industrial Corp.), the Nation
vehemently denied any such pressure existed or that any exodus was under way.
" Izvestia, No. 207. September (4, 1023. It is likely, although no evidence can be
presented, that the syndicate utilized the 3.000 outlets, 50 agencies, and 50 ware-
houses and manufacturing plants built by the Singer Sewing Machine Co. (Foreign
Claims Settlement Commission of the United States, Claim No, SOV-40, 920.)
Clothing, Housing, and Food Concessions 229
operating nine clothing plants in Moscow as well as plants in seven other
Russian cities. This was independent of the arrangement to aid, technically
and financially, the clothing syndicate.13 By late 1923 RAIC was operating
twenty-five clothing plants in Moscow alone and employed 15,000 workers."
The union also supplied skilled personnel to aid plants operating outside the
syndicate, and provided specialized personnel for research and other opera-
tions. (For example, the Moscow experimental factory had a manager supplied
by the union in the United States.) 1*
The capital and technical skills were supplied by the union, and the workers
and raw materials were provided by the U.S.S.R. Both sides were equally
represented on the board of control, and the enterprise run on a cooperative
basis.
The books had opened for subscription in June 1922 ; by August more than
$100,000 had been subscribed, and by September more than $300,000. It was
announced on September 1 5, just three months after formation of the company,
that a dividend of 8 percent would be paid. There were immediate protests
in the current news media that this was a payment from capital and not earn-
ings. Hillman denied this claim:
So far as our information goes we expect the dividend to come out ofthe earnings of the Syndicate. Under our contract with the Soviet govern-ment, if these earnings are insufficient the Soviet makes the dividendgood on our filing a claim. We have filed no claim, and reports that theSoviet has sent money here for this specific purpose are incorrect. 1'
In April 1924 the Amalgamated Clothing Workers of America opened two
banks: the Amalgamated Bank of New York and the Amalgamated Trust and
Savings Bank of Chicago. These banks called their 'most important function'
the transmission of dollars to Russia. By 1927 some $20 million had been sent,
in addition to $200,000 \): food gifts and another $300,000 in cash gifts. Themoney was 'largely used for the purchase of machinery and raw materials for
the clothing trusts of Russia.'1' RAIC also interested itself in Syndchveiprom,
the syndicate for the unitjd confectionery trusts, but, apart from a financial
investment, the degree of participation is not known,18
New York Times, October \i, 1923, p. 17, col. 6.
Nation, January 19, 192+, letter from S. H. Walker,
Nation, November 7, 1923, [-. 524.
JVetu York Timet, Septembc j, 1923, Sec. II, p. 11, col. 1. Payment out of capitalwould, of course, be an offense against the 'blue sky' laws.
Nation, May 25, 1927, pp. .^65-70.
Annuaire, p. 133.
230 Western Technology and Soviet Economic Development, igiy-ig^o
THE TRILLING, NOVIK, AND ALTMANCLOTHING CONCESSIONS
In September 1926, a Type I concession agreement was concluded withO. Trilling, of Poland—the former owner of the Spartak factory in Moscow.The concession produced woolen goods, including blankets, thread, andcarpets. The plant had been part of the Mossukno and was in a very run-downcondition, producing only 2 percent of the trust's output, although reportedly
working at capacity. Trilling was required to re-equip the plant completely
so that by the second year of operations it would produce not less than 200,000
meters of cloth, and by the end of the third year 300,000 meters. In addition,
Trilling was required to produce 150,000 meters of blanket cloth a year. Thenecessary equipment was to cost not less than $80,000 and had to be imported.
Trilling was employing 230 workers by 1929 and had introduced
considerable alterations and improvements in the factory, which wasobsolete. ... the whole plant was electrified and much new equipmentintroduced. The daily output of the spinning department was increasedfrom 400 to 2,500 kilograms of wool yarn. In the weaving departmenttwenty-seven new looms were installed and automatic drying machineswere purchased for the washing department. . . . Additional equipmentwill be imported to produce Jacquard blankets, an article which is notmanufactured at the present time in the Soviet Union. 19
Upon expiration of the concession, the enterprise was to be turned over
to the Soviets without compensation, free from debt, and in a technical
condition not less favorable than that for the final two years of operations.
In the meantime a yearly payment was to be made to the Soviet government.
This was to be not less than 40,000 rubles per year and equal to 6 percent
of the sales volume of the factory. The concessionaire was given the right to
establish a share company either abroad or in the U.S.S.R., with a capital
of not less than 400,000 rubles, and with all members to be approved by the
Soviet government. The term of the concession was to be fifteen years,
although the concession was actually expropriated long before this date.20
The second clothing concession was granted to Novik and Sons to operate
the Baranov factory for manufacture of caps and hats. They were required
to equip the plant and start operations within nine months of date of signature.
Production was to be not less than 20,000 dozen caps and hats per year, in
addition to 13,000 dozen felt snow shoes and 20,000 meters of felt cloth per
year. Novik paid an annual rent of 32,000 rubles and from the end of the
second year onward an additional annual royalty of 50,000 rubles per year.
At the end of the agreed term of twelve years, the factory was to be turned
over to the Soviet government in good condition and without charge.
'* Bank for Russian Trade Review, II, No. 2 (February 1929), 10.10 Ekonomicheskaya Zhisn, No. 237, October 14, 1926.
Clothing, Housing, and Food Concessions 23
1
A third concession was granted to the Austrian citizen, Altman, who tookover the former Gorbachev plant to produce knitted goods. The concessionwas required, within fourteen months from date of signature, to produceannually 25,000 kilograms of cotton and 50,000 kilograms of woolen yarn, ofwhich not less than 30 percent was to be used for the manufacture of stockingsand gloves. Altman was required to import equipment for production ofknitted goods.The equipment was to be valued at not less than 120,000 rubles,
in addition to equipment for wool-spinning valued at not less than 60,000rubles. A royalty of 8 percent was payable on knitted goods turnover and 5percent on woolen goods turnover.
Turnover was required to be not less than 400,000 rubles in the first, 800,000rubles in the second, and one million rubles in the third year. Annual rent wasset at 8,000 rubles. The factory was to revert to the state at the end of eighteenyears with complete equipment and in good working order.21 The concessionwas later taken over by Tiefenbacher and expropriated before the eighteen
years had expired.
There had been numerous small shoe-manufacturing concerns in tsarist
Russia. Aktieselskabet United Shoe Machinery Company of Copenhagen(the Danish subsidiary of United Shoe Machinery Corporation of the UnitedStates) had leased shoe machinery to over sixty-two plants before 19 14. Thisequipment was valued at five million rubles. In addition equipment wasstored in Petrograd warehouses. These factories and their equipment wereconfiscated in iqi8.m In the 1920s a concession was negotiated with the UnionShoe Company of Vienna for technical assistance and the use of importedAustrian equipment.23
TECHNICAL ASSISTANCE TO THE TEXTILE INDUSTRIESIn July 1929 an agreement was concluded with the U.S. firm, Lockwood,
Green and Company, under which four American textile machine-buildingspecialists were sent to the Soviet Union 'for technical aid in the reorganizationof Soviet textile mills as well as drafting projects for new textile mills.' Theagreement included 'material responsibility' by the American company for
the rationalization proposals of its engineers and was coincident with an in-
crease in the purchase of American textile machinery.** Another contract
aimed at rationalizing the accounting system in Russian textile mills; this
contract was made with the New York firm of management consultants, Eugin
SI
S3
Ibid.
Foreign Claims Settlement Commission of the United States, Claim No. SOV4-353-
U.S. State Dept. Decimal File 316-131-344.Ekotsomicheskaya Zkizn, No. 133, July 7, 1029, and No. 159, July 14, 1949.
232 Western Technology and Soviet Economic Development, i^ij-1^30
Szepisi.ss The design of plants for specialized textile products intended for
the export market was represented by the agreement with C. T, Steinert, of
Frankfurt, for the design and construction of a plant for manufacture of kid
leather.'*
There is little question that these design contracts stemmed directly from'uneconomic conditions' prevailing in the textile and allied industries.
Textilstroi (trust for building textile plants) was organized in 1926 with the
aim of reducing construction costs of textile plants. Investigation in 1928
showed that the trust had been undertaking construction without definite
plans or sufficient materials and labor. This had resulted in heavy over-
expenditures and slow construction. Administrative costs were out of line with
results achieved; in 1927-8 over 500,000 rubles had been spent without
producing any 'concrete results' whatsoever."
FRENCH TECHNICAL ASSISTANCE TO THE SILK INDUSTRYThe silk trust (Shelkotrust) was formed in 1921, It consisted of thirty-eight
prerevolutionary factories in the Moscow and Vladimir districts, including
some plants with a large prewar output. The planned output for the first
year of production was 1.9 million arshines (compared to 60 million for the
same plants in 1913). This target was not achieved. The largest plant in
Shelkotrust was the Moscow plant of the Societe Anonyme Franco-Suedoise
pour la Fabrication de Soie en Russie, built in 1889 and considerably enlarged
in 191 1. Before the Revolution the plant had employed over 2,000, but, even
by 1930, with extensive foreign assistance, employment was still in the region
of 350-4oo.!S
In 1923 negotiations were begun with the former French owners concerning
further investment. These resulted in several agreements after some four or
five years of discussion. In February 1928 a contract was made between
Iskustvennoie Volokno (a Soviet company), the French firm Soieries de
Strasbourg S-A, and Professor E. Bronart for production of artificial silk by
the viscose process. The agreement was for ten years and the French parties
undertook to give technical assistance in the construction and operation of a
new plant in Leningrad utilizing the patents and processes ofthe French firm. 49
By 1930 the firm had built two plants, one in Leningrad and another in
Moscow. This was followed by an agreement to build a third plant at Mohilev
!S Vneshtorgizdat, op. cit., p, 227.M
Ibid., p. 229.17 Ekonomicheskaya Zhizn, No. 223, September 25, 1928.a
J. Douillet, op. cit., p, 48 ; and Ekonomicheskaya Zkisn, No. 277, December 9, 1921." Ekonomicheskaya Zhizn, No. 46, February 23, tgiS; and Vneshtorgizdat, op. cit.,
p. 230.
Clothing, Housing, and Food Concessions 233
using equipment supplied by a German firm, Oskar Kohorn A-G, of Chemitz.The Kohorn company also had a direct technical-assistance contract withShelkotrust for the supply of data and assistance in the manufacture ofartificial silk by the viscose process. Combined output of the German-assistedplants was 20,000 kilograms per day of artificial silk, but nothing is known ofthe exact number and location of these plants.50
EUROPEAN BUTTON CONCESSIONSEven the lowly button had a number of manufacturing concessions.
Tiefenbacher Knopfabrik A-G, button manufacturers of Vienna, signed aconcession agreement in July 1926 and was still manufacturing buttons underthu agreement at the end of the decade. The company sent equipment fromits Vienna plant to Moscow and took over the factory previously occupied bythe Altman company.41
Skou-Keldsen also had a button concession at Poltava in the Ukraine andanother in Leningrad. At one time the company applied for further works inKiev and Odessa, but there is no record that the application was successful."Two other manufacturers of buttons were Stock A-G and Block and Ginsberg,both German companies.
TECHNICAL ASSISTANCE TO THE FOOD INDUSTRYTechnical assistance in the food industries consisted of equipping plants in
key processing industries and designing of plants for the Five-Year Plan."A concession agreement between Okman (an Estonian) and the Kharkov
Provincial Council of People's Economy created a joint company to run beerand malt breweries in the Ukraine. This was a Type II concession, and bothparties deposited 85,000 rubles capital. The company had three directors:Okman, and two others appointed by the Provincial Council, which received60 percent of the profits « H. Langmann and Sons, of the United Kingdom,had a concession for growing hops for the brewing industry.
« Y,'l' ?mbassy in wa«aw, Report No. 294, October 7, 1930.
» nt ttM'£ePt
-DedmaI FUe
' 3 l6-3.-34S and 3.6-. 1 1-9.6.U.S. State Dept. Decimal File, 316-13 1-668.
fLTPj?e,T
°f C0.nce?sioJ?» we« rumored to be in this field but concrete evidence
" U.S. State Dept. Decimal File 316-131-119.
234 Western Technology and Soviet Economic Development, 1917-1930
Gaier, a French firm, equipped a plant in the Ukraine to produce oil from
various seeds." In 1930 a technical-assistance contract was concluded with
Harburger Eiscn und Bronzwerke A-G for design, construction, and supply
of equipment for oil-crushing mills. A similar agreement was made in the
same year with the Dutch firm, N.V. Maatschappij Tot Exploitatie von
Veredelinsproccdes, for technical assistance in the saccharification of wood
pulp to produce cattle fodder and glucose. 3*
Design of meat-packing plants was the subject of a contract between
H. G. Hcnshien of Chicago and the food industry.3 ' The German firm, Hect-
Feifer, enlarged the Odessa meat-packing plants and arranged for the export
of preserved meat to Germany.38 The Mechanical Manufacturing Company,
of the United States, provided technical assistance to the meat-packing
industry.39
The design of condensed-milk plants was the subject of a contract with the
McCormick Company, of Pittsburgh." Another design-assistance contract
was with Penick and Ford, Inc., of Cedar Rapids, Iowa, to plan factories for
production of corn products." General technical assistance to the food
industry was the subject of an agreement with Webber and Wells, Inc., of
Chicago. 12 The Romanoff Caviar Company had its nationalized plants return-
ed, and, as the company had German and American owners, it must be con-
cluded that the Soviets were interested in developing the foreign exchange
potential of caviar.45
Three large bakeries were constructed by the McCormick Company. These
were not only the largest in the Soviet Union but among the largest anywhere
in the world, with a daily capacity of 200 metric tons, produced during three
shifts. Operations were completely mechanized, so the workers numbered only
seventy per shift. McCormick engineers designed the plants and supervised
construction, installation, and initial operation of American equipment."
The output of bread in Moscow in 1927-8 was 175,000 tons and in Leningrad
278,000 tons. These were significant increases from 1925-6, when the Moscow
output had been 74,000 tons and the Leningrad output 147,000 tons. Each of
»* Izvestia, No. 7. January 9, 1924-
" Vneshtorgisdat, op. cit.. p. 228.
" American Russian Handbook, p. 99.
" Polish Foreign Office Report, October 7, i9^9. <
» A. A. Santalov and L. Segal, Soviet Union Year Book, 1930, (London: Alien and
Unwin, 1930), p. 358.
" Ibid.
" Ibid., p. 100.
" Ibid., p. 101.
" Report 93130, April ta, 193° (3i6-i3«>-i293)-
" Bank for Russian Trade Review II, No. 7 (July 1929). »6-
Clothing, Housing, and Food Concessions 235
the new plants built by McCormick was able to produce 74,000 tons per year
on two shifts. There is little doubt that the whole increment in bread output
came from these mechanized American bakeries."
Most of the sugar refineries in the Ukraine were put back into operation by
German technical assistance forthcoming under the Rapallo Treaty. In 1929,
however, there were, still ten refineries in a state of 'technical preservation,'
and three new refineries were planned to replace these.1*
Concessions were rare in the tobacco field. There was one in 1924 with
A. Lopato and Sons, of Harbin, China, for the operation of the latter's
prerevolutionary plant in Chita, Siberia. A fifteen-year lease was granted the
company, which paid the Soviets 5 percent of gross output, and a tax equal
to 3 J percent of the market price of tobacco.4'
TECHNICAL ASSISTANCE IN HOUSING ANDPLANT CONSTRUCTION
The American-Russian Constructor Company (ARK) made a private
Type I concession agreement for house repair with the Moscow Soviet.
Practically all the stock was held in the United States. Houses in need of
repair were allotted to the company by the Moscow Soviet for terms of 8, 18,
or 36 years, according to the amount of capital required to place them in
habitable condition. The company was to furnish all materials and labor,
repair the houses, and keep them in good repair for the stipulated period.
During this term the company was to have renting privileges. Of the rent
collected, 80 percent accrued to the company and 20 percent to the MoscowSoviet. Taxes were paid by the tenants. About 24 Americans (mostly of Russian
origin) were employed by the company.*8 Little is known about the specific
operations of ARK, but it probably expired in the early 1930s when the Soviet
ran out. of houses in need of repair. In 1923 the functions of the concession
were extended to 'construction and repair work, organization, leasing andoperating plants producing construction materials in the RSFSR and allied
republics. . ..'49
In late 1923, following a decree of the Soviet of People's Commissars whichremoved a number of institutions and organizations from Moscow to relieve
the housing shortage, an agreement was made with Geoffrey and Curting,
Ltd. (United Kingdom), to undertake capital repairs on these buildings.
" Calculated from data in Bank for Russian Trade Review II, No. 7 (July 1939), 16." Pravda (Moscow), No. 98, April a8, 1929." U.S. Consulate at Harbin, China, Report No. 2824, September 20, 1924." U.S. Consulate at Riga, Report 212, December 23, 1922," Ekonomicheskaya Zhizn, No, 105, May 13, 1923.
236 Western Technology and Soviet Economic Development, 1917-1930
A large company was formed for this work, but nothing has been reported
about specific operations.60
By 1925 the housing situation had become desperate. Resultant fatigue was
blamed for many industrial accidents. One article warned against placing too
much reliance for construction on cooperatives and suggested that the greater
part of the needed house building should be done by 'commercial organiza-
tions.'51 This was followed by an agreement in March 1929 with the Longacre
Construction Company, of the United States, to build according to the "latest
technical methods' some four million rubles' worth of workers' housing in
Moscow. 62
Another concession in housing, between Tsentrozhilsoyuz (the Central
Union of Dwelling Cooperatives) and the German firm, P. Kosset A-G in
1926, provided for the establishment of a Type II joint-stock company to
build houses, hotels, and apartments. Rusgerstroi had a share capital of six
million rubles equally subscribed by each party. Kossel received 1.9 million
rubles for patents turned over to the joint company. The Soviets received the
same amount free. The concession was stipulated to last twenty-five years, but
Kossel was ejected in 1928. In the meantime, the company established
cement, glass, and woodworking plants.53
A series of articles in Ekonomicheskaya Zhizn suggests why concessions
were attempted in the field of housing and why the plants of the Five-Year
Plan were designed and built by foreign companies. Several meetings of the
Soviet of Labor and Defense were devoted to the question of the extremely
poor results of industrial and domestic building programs. There was no
responsible supervising organ; each production unit had tried to become
self-supporting. This resulted in poorly designed projects whose costs had
usually been underestimated. There were gross technical inefficiency and
poor technical training. The input industries—especially the glass, paper and
chemical industries-were inefficient, and supplies of these products were
irregular and of poor quality. 54
SMALL HOUSEHOLD ITEMS
The Alftan pure concession granted in 1924 produced typewriter ribbons
and carbon, waxed, colored, and parchment paper.55 Elia Shulmann took over
10 Pravda (Moscow), No. 224, October +, 1923.
11 Torgovo-Promishlemiaya Gaxeta, No. 268, November 24, 1925.
» Izvestia, No. 51, March 2, 1929.
" Ekonomichetkaya Zhizn, No. 180, August 8, 1926-
» EkononUcheskaya Zhizn, various issues for April ,ga8,
»«««*«."I**,and
Fanuarv to June 1929. Negotiations were reported m the Soviet press with the
American companies Van Soon and McDonald for constructor of large cement
plants (Izvestia, No. 248, October 26, 1929).
" Ekonomicheskaya Zhizn, No. 346, November 28, 1924.
Clothing, Housing, and Food Concessions 237
his prerevolutionary factory in Moscow for a concession to manufacture
typewriter ribbons, carbon paper, indigo, copying paper, stencils, and inks.
The factory employed 150 and was the largest in the U.S.S.R. making these
articles. In 1926 Shulmann, a Latvian citizen, concluded another agreement
for the manufacture of steel pens, penholders, drawing pins, paper clips,
pencil sharpeners, and fountain pens.** A Finnish firm, Raabe, was granted a
concession to operate the nail factory at Nerecht, in Kostroma Province."
After the demise of the Harriman manganese concession, United States
manufacturers were decidedly cool to further concessionary ventures. One,
however, was concluded in the record time of three weeks between the Gillette
Safety Razor Company and the U.S.S.R. Gillette was obligated to build a
plant in the Soviet Union—the first time an American company decided to
build on Soviet territory.*8
THE HAMMER CONCESSIONS
The first Hammer concession was granted to Allied Chemical and Dye for
operation of the Urals asbestos deposits, discussed in chapter 6. The best-
known of the Hammer concessions was one granted in 1925 for production of
pencils, pens, celluloid drawing instruments, and similar items. The cedar,
graphite, and colors were imported. Machinery and skilled labor were brought
from Germany. Four factories, located in Moscow, employed at their peak
about 1,000 persons.*9 The pencil concession was, in effect, a monopoly, and,
at the end of the first year's business, a turnover of $2.5 million, with net
profits of 96oo,ooo, was reported. Some 8450,000 of the profits was reported
as having been exported. The second year's turnover was $3.5 million, on
which profits were $550,000. A turnover tax of between 6 and 10 percent was
payable, together with an income tax of 10 percent on gross income and a tax
of 50 percent of all profits in excess of the first 20 percent of profits based on
invested capital.60 It was reported in 1927 that Dr. Hammer was seeking a
$500,000 loan in New York for further expansion of the pencil factory. Obliga-
tions by Centrosoyuz were offered as security. Further security was offered in
* Troyanovsky, op. cit., p. 861.
" Prawta (Moscow), No. 250, November 3, 1923.
« New York Times, December 10, 1919, p. 8, col. 4. Nothing more was reported; it
is presumed the agreement was not implemented.
" U.S. State Dept. Decimal File, 316-136-1340. Hammer's monopoly resulted from
pi'oduct superiority rather than agreement. Alexander Barmine, One Who Survived
(New York: G. P. Putnam, 1945), P- '57, says, 'The State Mospolygraph Trust
undertook to make cheap pencils, but the quality was bo bad they could not competewith Dr. Hammer's more expensive goods.' High import tariffs were placed onpencils to protect the State Pencil Trust (Karl Liebnecht factory). (Ekonotmtheskaya
Zhizn, August 11, 1923.)
*° U.S. Embassy in Berlin, Report 4457, April 11, 1929.
238 Western Technology and Soviet Economic Development, 1917-1930
the form of Russian government loan bonds." This appears as a pre-Harriman
attempt to break United States policy against long-term loans to the Soviet
Union. The concession was turned over to the Soviets on December 20, 1929,
in accordance with a clause in the contract which enabled the Soviets to buy
out at any time at an agreed valuation.82 There are unique features about the
Hammer concessions. The pencil concession had a smooth and profitable
history, quite unlike most other concession agreements. The purchase clause
was invoked and accepted without the usual protest.
41 New York Times, November 22, 1927, P- 4°, col. 2.
" New York Times, December 22, 1929, p. 3'. "1. 2.
CHAPTER FOURTEEN
Transportation and the Transportation
Equipment Industries 1
RECONSTRUCTION OF THE RAILROADS
The heart of Russian trar,sr-ort is the railroad. Development in tsarist times
was limited by weak track, which in turn limited size of locomotives employed.
The tsarist Ministry of Transport had a rather limited view of locomotive
construction, and its was r.c: until 1912 that the Vladikavkaz Railroad in the
North Caucasus introduce;; a ten-coupled freight steam engine. This was the
finest engine available in the 1920s and became the standard Soviet type.
However, the comparative bt-kwardness of the Russian railroad system wasnot due to lack of experimenl'ition or innovative ability. Westwood points out
the long Russian history in steam traction, from tsarist times to the Soviet
research,*
Restoration of railroads and ports, both heavily damaged in the Civil War,
were the essential prerequisites to economic development.8 This reconstruc-
tion was begun in the immediate post-Rapallo period, with extensive German
Locomotive construction is covered under Gomza (chap. 10).
Westwood, op. tit., p. 93.
Just how badly the railroads were damaged is controversial. The American ReliefAdministration (in a telegram to the Dept. of Commerce, U.S. State Dept. DecimalFile, 316-107-853) argued, 'Railroads functioning with old employees who ap-parently take pride in their accomplishment. Main yards on the whole dean. . . .
We have traveled entirely on regularly scheduled trains and on time in everyinstance except once when two hours late due to wreck on main line . . . howeverbarring ARA supplies no freight moving and passenger traffic limited foreign reliefagents, government officials, repatriated refugees and occasional troop movements,'On the other hand, Hilger (then German Relief representative) states, "The trans-port system was in complete ruins and what railroad travel still continued wasdisturbed by repeated attacks on moving trains,' (Hilger, op. tit., p. 45.)The most probable view is that little freight was moving, many bridges were out(especially in the Don), and main lines in the north were clear because of largenumbers of workers rather than 'old employees.'
240 Western Technology and Soviet Economic Development, 1917-1930
technical assistance, and completed between 1922 and 1924. German trade
figures for exports to Russia in 192 1-2 (table 14-1) suggest how much
importance was attached to this phase of Russo-German cooperation.
Table 14-1 GERMAN EXPORTS TO THE U.S.S.R. ANDPROPORTION OF RAILROAD MATERIALS
(in current paper marks)
Year
1921
1922
Month
JuneJuly
AugustSeptemberOctoberNovemberDecemberJanuaryFebruary
Total Exports
(in millions of
marks)
Locomotives
(in millions
of marks)
Other RRMaterial(in millions
of marks)
Proportion of
RR Materials(percentage)
18,166 million
64,261
130,248128,70454.77'
112,678
136.2S543,272*6,278
"7.255
36,667
42,354*
3.422
17,300
88,94484,607
21.4173'.7438,628
7.797*6,278
Source: U.S. State Dept. Archives, 340-650. Column 5 calculated.
* Figures as given in source.
18.8
*7-'
68.3
79.1
39-160.1
6.3
UNITED STATES TECHNICAL ASSISTANCE TOTHE RAILROADS
Two groups of American railroad engineers investigated conditions of rail-
roads in European Russia in the middle and end of the decade. The first group,
under H. G. Kelley, former President of the Grand Trunk Railroad, made
an inspection of the Ekaterina Railroad and the Donetz Railroad on behalf of
Percival Farquhar, who was negotiating a large concession to run both rail-
roads and related iron and steel plants. 4 The second investigation was made
in 1930 under the supervision of Ralph Budd, of the Baltimore and Ohio
Railroad. The recommendations of the Budd Report were implemented by
150 engineers from the B&O after 1930.*
The impulse to grant major railroads as concessions resulted from their
declining ability to handle traffic, although the honeyed phrases of the Kelley
* H. G. Kelley, General Report on Ekaterina Railway, Donets Railway (New York,
1926). A copy is at U.S. State Dept. Decimal File 316-131-744, with supplement
at 316-131-872.1 The B&O work will be covered in Vol. II. The Russian Railway Service Corps, an
American organization, and the Inter-Allied Railway Commission in Siberia did
major reconstruction work between 1918 and 1922. There is extensive material on
this in the U.S. State Dept. Archives. The 1,100-mile Turkman-Siberia railroad
was built under the direction of an American deportee, Shatof.
Transportation and the Transportation Equipment Industries 241
report slur over the operating and physical deficiences of the systems examined.
Advance data supplied by Amtorg to Farquhar gives the daily average number
of loaded cars handled by the Ekaterina Railroad. Traffic declined from 3,351
cars daily in October 1925 to 3,066 in February 1926, and on the Donetz
system from 4,011 daily in October 1925 to 3,911 in February 1926,'
Both railroads had been built well before the Revolution. In the case of
Ekaterina, the report indicates date ofconstruction ofthe twenty-one divisions
;
fifteen sections were opened for traffic before 1900, and all divisions (except
the Apostolovo via Snigirevka) were open for traffic before 1910. These were
well-established railroads, built to provide transportation for the tsarist-
developed iron and steel plants and coal mines of the Donetz. The Ekaterina
comprised over 1,600 miles of first main track, and the Donetz, 1,459. Both
railroads serviced coal fields, iron ore mines, manganese mines, iron and steel
works, and the Ukrainian agricultural region. They constituted the most
important combined system in the U.S.S.R.
They were built according to European standards with light equipment but
had always been substantial net earners. The aim of the Kelley study was to
determine the cost of modernization according to American standards. Thefirst recommendations were that train weight should be increased from i,ioo
net revenue tons to 3,500 net revenue tons and that suitable locomotives and
capacity should be provided for the expansion. It was pointed out by Kelley
that to move the anticipated 1927-8 traffic with existing equipment would
require thirty-eight trains daily, while with the proposed greater train weight
only twelve daily trains would be required, 'reducing the train density . . .
and making room for the steadily increasing traffic of the railway in products
of agriculture, manufacturing and miscellaneous commodities.' The equip-
ment and physical resources required to support such a system were then
given in detail.
The basic objective of the report was clearly to determine the requirements
for expansion. Indeed, it is clear from the report that the roads were handling
far less than their prewar volume. The total train mileage operated by the
Ekaterina in 1913 was more than 15 million train miles, whereas in 1924-5
(latest year given) the mileage was a little over 4.5 million, or about one quarter
of the 1 91 3 volume.
In terms of car miles or locomotive miles, the proportion was about the
same.7 Total tonnage of all classes of freight carried in 1913 on the Ekaterina
was 40 million, compared to 13.5 million in 1924-5. Figures for the Donetz
system are not given. It may be presumed they were less, as the physical
' U.S. State Dept. Decimal File, 316-131-745/6.' Kelley, op. eit., p. 125. Again, use of 191 3 as a base is misleading. Traffic increased
substantially between to 13 and 1917.
24* Western Technology and Soviet Economic Development, 1917-1930
operating conditions were not as good as those for the Ekaterina. The poor
condition of the bridges on both lines may well have been a contributory factor
to limited operations. The Ekaterina line had 1,774 bridges less than 70 feet in
length and 81 bridges greater than 70 feet in length; 245 of the former and
37 of the latter had been destroyed or damaged by the Civil War and Inter-
vention. Considering that railroad destruction was the focal point of military
activity, the damage perhaps is not as great as one might have expected. Of the
smaller activity, bridges, some 206 had been rebuilt and the balance of 39
put into temporary working order. Only 23 of the 81 major bridges had been
rebuilt, leaving 14 operating under temporary operating conditions. These
limitations were compounded by the poor condition of the roadbed and
generally inadequate maintenance.
The appendix to the Kelley report includes an estimate of the amount of
repair work required to restore the bridges on both systems. This estimate,
when coupled with the equipment repair backlog, suggests that a massive
job would have had to be accomplished before the railroads could be put into
prewar operating condition.8
THE BEGINNING OF RAILROAD ELECTRIFICATION
Two Soviet railroads were electrified before 1930. This was recognized as
an alternative which enabled increased capacity without new line construction.
The first line to be electrified was a 13-mue suburban line in Baku in 1926.
It whs installed under German supervision. The overhead system and rolling
stock were similar to that of the Berlin high-speed, multiple-unit, side-door
trains. The roiling stock was made in the Soviet Union using German patterns
and models and under German supervision.9
The second line to be electrified was the Moscow-Mytishchi line, an eleven-
mile commuter line completed in 1929. This was also of German construction
and utilized imported German equipment. 10
Complete railroad electrification came under serious consideration about
1928-9, and several engineering delegations visited Western Europe, the
United States, and Mexico to study various types of electrification systems.
In 1929 the People's Commissariat of Transportation selected the Suram
Pass section of the Trans-Caucasian railroad as a trial section for electrification.
« There are numerous omissions in the Kelley report which give rise to the thought
that the report, as donated to the U.S. State Dept., had been considerably doctored
or censored to disguise the true state of affairs. There is, for example, an inconsistency
between the buoyant, flowery accolades to Russian maintenance skill and the
statistical information given in support.
• Ruykeyser, op. cit., p. 80,
10 Westwood, op. cit., p. 41.
Transportation and the Transportation Equipment Industries 243
This was a strategic section carrying oil to Batum for export, and the system
decided upon there was to be used as basis for future electrification. General
Electric was chosen to develop a suitable locomotive design and to provide
the firet eight main line units. There had been no construction of electric
locomotives tn the Soviet Union up to this time, so the G.E. prototype,
the 'Suram', was transferred to the Dynamo works and construction of diesel
electrics based upon it.11 The system was a 3,ooo-volt direct-current onewith
I zo metric tons locomotive weight, using a 6-axle, articulated, 2-truck design.
This was 'in accordance with the exhaustive studies and recommendations of
General Electric.'1* J. N. Westwood points out that current Soviet diesel-
electrics stem directly from the initial G.E. design.18
DEVELOPMENT OF THE RUSSIANAUTOMOBILE INDUSTRY
Russia took an early interest in the automobile; there were more than
500 automobile taxis in Moscow before 1910. Many of the vehicles were
imported; nevertheless, tsarist Russia could claim the distinction of having
produced automobiles without foreign technical assistance, while the Soviets,
after spending a decade, finally gave up and handed the problem over to
foreign companies.14
The Baltic Engineering Works in Moscow was producing 250-300 automo-
biles annually as early as 1912 and expanded its production during the war.
Mechanically the Baltic was a good automobile although more expensive than
its European and American competitors.16 The Baltic plant was completely
re-equipped with American machinery early in 1917, but this effort was not
completed by the time of the Bolshevik Revolution. The Soviet administration
put 1,000 men to work to complete the plant. This was achieved in 1920,
but the plant was abandoned later the same year.18 Next year the Baltic was
placed under Red Army management and with German assistance turned its
attention to heavy military vehicles. Production in late 1922 was about two
II Monogram, November 1943.
» Ibid.
" Westwood, lac. cit.
'* The following Russian automobiles were produced before the Bolshevik Revolu-
tion: the Leutner (1911-1913), Marck (1906-1910), Rmso-Baluc (1900-1013),
Sevronsky (1901-1905 and 1911-1915), andtheTansky (1001-1005). [G. R. Doyle,
The World's Automobiles, 1880-1953 (London: Temple, 1957)-] The Soviets have
not (in 1966) produced a completely indigenous automobile design; see Vols. II
and III.
" U.S. State Dept. Decimal File, 316-164-402.
» Keeley, op. cit. Compare this to the claim that there were no automobue-manufac-
turing plants in prirevolutionary Russia, as stated in Skonomichetkaya Zhitn,
No. 46, February 25 1925.
244 Astern Technology and Soviet Economic Development, 1917-1930
units per month.17 A few years later attention was turned to buses, of which
there were none in Russia. By a heroic effort one was manufactured, 'consisting
of parts nearly all made in Soviet Russia, except the frame and axle.'18 Later
in 1928-9 the Italian Fiat truck was produced at the Baltic under an agreement
with the Fiat company" and also a few British Mark IV tanks were copied
from a prototype. 80
The new AMO automobile factory was also completed in 1917 just before
the Revolution. It was located m a modern building with the latest in American
equipment and was designed to employ 6,000 workers. Between 1919 and 1921
the only output was repair work on a few White trucks. For this AMOemployed about 1,200, under supervision of Adams, an American deportee.21
The Soviets have claimed there was no automobile manufacturing in Russia
before 1930, although actually they had two large, well-equipped plants intact
after the Revolution. As with the Westinghousc, Citroen, Singer, and other
operations, Soviet skills were not available to operate the inheritance.
The Citroen plant offers an interesting example of the dilemma in which
the Communist Party found itself. The plant was allowed to operate unnation-
alized for some years. In 1921 the firm formally applied for release from the
nationalization decree, and the response was immediate enforcement of
nationalization.28 The highest levels of the Party had been well aware of the
vacuum created by the Communist takeover of industry. They allowed larger
plants to operate in 'capitalist hands' until solutions presented themselves.
On the other hand the workers in these plants were forced to do more work
under capitalist discipline and naturally pressured for nationalization. Where
this pressure was taken up by the lower ranks, implementation of the nationali-
zation decree was forced upon the Party.
The solution to the automobile-manufacturing problem was formulated
slowly. The AMO plant continued miniscule production of trucks (much
less than the planned 2,000 per year). The AMO truck was unsatisfactory
in quality and very expensive to produce.23 Until the 1930s, however, it was
the only one in production. Beginning in 1929, production was reorganized
and upgraded as the result of a technical-assistance agreement with the A. J.
Brandt Company, of the United States.
" Pravda, No. 188, August 23, 1922. Probably armored cars.
18 Heroic, as it was reported under the title, 'Our achievement—the first Soviet bus'
almost as a military victory. Which parts, if any, were actually made within the
USSR, is difficult to determine.
" U.S. State Dept. Decimal File, 316-131-417." See chap. 15.!1 The Kccley report op. cit. states that the AMO output in ioi) could have been
handled by any American garage with less than 20 men." Swedish Export Association, Report, 1922. (316-107-782/3.)
" Ekonomicheskaya Zhten, No. 134, June 1, 1925.
Transportation and the Transportation Equipment Industrie* 245
The first tentative steps in the direction of a mass production automobile
industry had been taken in 1925. A large-scale motor-vehicle driving contest
was instituted to 'ascertain the types of automobiles, motor trucks, and motor-
cycles best suited to Russian conditions.' 11 The total stock of automobiles
in the U.S.S.R. at this time was less than 16,000, of which only 10,000 were
running," so it is not surprising that endurance, mileage, and acceleration
were tested, among other characteristics. Participants were 169 vehicles, one
of each current make, including 82 passenger cars, 48 trucks, 21 special
vehicles (fire engines, etc.) and 18 motorcycles. Among the entrants were all
European and American models of note; if the manufacturer did not enter
voluntarily (which was the case with most American producers), a vehicle was
purchased by Amtorg and entered involuntarily.2* AMO entered a truck,
but this was assembled from imported parts not of Russian manufacture.
The record docs not show whether it completed any of the tests."
The Contest Committee evaluated the results and published a report of
its findings. Ehonotnicheskaya Zhizn reported these and carried an interview
with Z. T. Litvin-Sedoy, Chairman of the Committee. 88 He pointed out that
both American and European manufacturing had undergone fundamental
changes since the war, in both methods of construction and techniques.
(He was referring to mass-production techniques, substitution of metal for
wood in automobile coachwork, and the use of improved alloy steels.) It was
pointed out that prewar reputations did not necessarily apply in 1925. except
in the case ofMercedes, which maintained its 'excellent* reputation. The report
was critical of American automobiles, but less critical of American trucks.
It feared the latter could dominate the market because of their low cost, but
the high fuel consumption, unknown composition of materials used, and the
difficulty of acquiring spare parts were held to be serious objections. It is
interesting to note, in the light of subsequent agreements, that the Ford entry
failed and that, despite its low price, it was held to be very expensive in
operation.29
Negotiations with the Ford Motor Company began in January 1926, and
one immediate result was that International General Motors sent its Baltic
representative, T. E. Eybye, to explore possibilities for General Motors
business. Eybye was decidedly negative; he reported that he felt prospects
» Ekonomickeskaya Zhisn, No. 46, February 25, 1925.
" Ibid.
" U.S. Consulate in Riga, Report 3234, October 2, iozS>
" Ekonomichethaya Zhizn, various issues for early 1915.
" Ekonomichethaya Zhizn, No. 216, September sz, 1925.
a U.S. Consulate in Riga, Dispatch 3516, January is, 1926 and Dispatch 3851, June
16, 1926.
246 Western Technology and Soviet Economic Development, 191^-1^30
were slight and that it was inopportune for G.M. to establish itself in the
Soviet Union.3"
The first version of the Five-Year Plan, drawn up in 1927, made provision
for production of only 3,500 autos per year. This small output was vigorously
assailed by V. V. Ossinsky, Director of the Central Statistical Administration,
on the grounds that the TJ.S.S.R. was 'catastrophically backward' in automobile
production, and that on both economic and military grounds there wereinsurmountable arguments for the establishment of a plant capable of produc-ing 100,000 automobiles per year.31
In the fall of 1928, the 'activization of concessions' policy failed to produceforeign bidders to erect an automobile plant in the Soviet Union. Subsequentlythe Soviets incorporated their plans into the Five-Year Plan. In 1928 Ossinskywas sent to the United States to negotiate with Ford, General Motors, Durand,and Studebaker. Ford was the most promising as a supplier of automotive
experience and equipment required. Negotiations moved along three separate
lines: (1) American ownership and operation on a concession basis, (z) a mixedcompany, and (3) Soviet ownership and operation with technical assistance
and financial help from the United States.
Ossinsky was followed to the United States by Meshlauk, of Vesenkha,
who conducted final negotiations with both General Motors and Ford. Apsychological ploy was added in the Soviet press when the Soviets suddenly
announced their intention to build an automobile plant 'with their ownresources' capable of producing 100,000 cars per year. Gipromcz andGlavmashstro'i were directed to produce plans and work out a manufacturing
schedule 'within two weeks'—an absurd proposal. n!!
THE SOVIET AUTOMOBILE INDUSTRYAND HENRY FORD
On May 31, 1929, V. I. Meshlauk, a member of the Presidium of the
Supreme Soviet, and Saul G. Bron, President of Amtorg, signed an agreement
with the Ford Motor Company under which the Soviets contracted to purchase
830 million worth of automobiles and parts before 1933 and the Ford MotorCompany agreed to furnish technical assistance until 1938 in the construction
30 Ibid.
31 V. V. Ossinsky, 'The American Automobile or the Russian Peasant Cart', Pravda(Moscow), Nos. 162, 163, and 194, of July so, 21, and zz, 1QZ7, states: 'If in afuture war we use the Russian peasant cart against the American or Europeanautomobile, the result to say the least will be disproportionately heavy losses, theinevitable consequences of technical weakness. This is certainly not industrializeddefense."
31 'Towards New Victories on the Industrialization Front,' Torgovo i promysMennayaCazeta, No. 53, March 5, 1929.
Transportation and the Transportation Equipment Industries 247
of an automobile-manufacturing plant at Nizhni-Novgorod. The plant, to be
completed by 1933, was to produce the Model A (called by the Soviets Gaz-A),
the Ford light truck (Gaz-AA), and the heavy truck (AMO-3). All Ford
patents were placed at the disposal of Gipromez, and Ford engineers rendered
technical assistance in the introduction of Ford manufacturing methods.
Soviet engineers were given facilities to study Ford methods at the River
Rouge plant in Detroit.
The Ford plan adopted included a schedule which potentially gave the
Soviets their 100,000 automobiles per year:
Proposed total output Percent imported
1st year 1929—30 6,000 100 percent
2nd year 1930-31 24,000 1003rd year 1931-32 48,000 S°4th year I93*~33 96,000-100,000 25
The first year's schedule covered manufacture of bodies, fenders, hoods,
and all sheet metal work in the new Austin-designed plant at Nizhni-Novgorod,
while assembly of complete vehicles was located at the temporary plant. The
second year's schedule extended this program to cover the manufacture of
fittings. The third year added engine production, by which time it was planned
that the technical-assistance contract with the Brown Lipe Gear Company
would have developed gear-cutting technology. The fourth year phased in
rear and front axles made in the Soviet Union with the assistance of the
Timken-Detroit Axle Company. This last year phased in domestic production
of all instruments, batteries, and electrical equipment imported up to that
time from Detroit.33 Raw materials and semi-manufactured inputs were
concurrently developed to phase into the above schedule. The plan included,
for example, the manufacture of automobile-quality steels at Prioksky,
Sormovo, and Vyhksunsk, and at the Novosormovo foundry. Glass was to be
developed at Sormovo.
The development and learning process noted previously in this study is
repeated. The first stage involved assembling automobiles manufactured
abroad and imported as parts. For this purpose Ford converted an unused
railroad shop at Lublin. This had the capacity to assemble 10,000-12,000
vehicles per year and was, of course, a training ground while the main plant
was under construction. Production was transferred in stages to the new plant
and imported parts gradually cut off. By 1934 all parts were being supplied
internally, although many were of indifferent quality. In the late 1930s, Ford
" Pravda, No. 128, June 7, 1929; and Sorenson, op, cit, chap. 15.
248 Western Technology and Soviet Economic Development, 191J-IQ30
obtained one of the Nizhni-Novogorod Model A (Gaz A) automobiles which
had been exported by the Soviets to Turkey. It was shipped to Detroit and
there pulled to pieces; Sorenson comments 'it was a pretty poor reproduction
of Model A.'34 The Foid was still in production in the late 1930s and by 1938production was 84,000 units per year.35
The automobile industry is, then, an excellent example of a planned step-
by-step transfer of Western technology at minimal cost. Ford was happy to
sell $30 million worth of parts and throw in invaluable technical assistance
for nothing. Technical assistance in production of axles, tires, bearings, and
other items required payment but, as the marginal cost to American companies
was slight, the Soviets reaped a gigantic harvest of technological knowhowfor almost no outlay,
Table 14-2 TECHNICAL ASSISTANCE CONTRACTS (TYPE III)
IN THE SOVIET AUTOMOBILE CONSTRUCTION INDUSTRY TO 1930
Western company Soviet trust Nature 0/ technical assistance
Reconstruction of AMO truck plantGcat-cutting technologyNizhni-Novgorod and Moscow plantsTruck engines for AMO plantTechnical assistance on road buildingConstruction of tire plant
Axle and bearing technologyConstruction and design
Sources: Soviet Union Year Book, 1930, pp. 357-9.
U.S. State Dept. Archives.
As the Ford agreement was being signed in June 1929, another was being
negotiated with Arthur J. Brandt for assistance in reorganizing the AMOtruck plant. Preliminary technical work for the reorganization was undertaken
in the Detroit office and works of Brandt, while American engineers were sent
to the AMO works to investigate production conditions. Facilities were
upgraded to produce 25,000 of the Ford 2j-ton truck (AMO-3), whereas
previously only a few hundred a year had been produced.36 In the following
September, ten AMO engineers went to Detroit for training,37
One month after the signing of the Ford agreement, the Austin Companymade a construction proposal to Glavmashstroi under which it guaranteed
'* Sorenson, loc. cit.
" Report by Oberkommando der Wehrmacht, (OKW/Wi Ru Amt/Wi), March 1941
,
Miscellaneous German records, T 84-122.** Torgovo-Promyshlevtiaya Gazeta, No. 127, June 6, 1929.
" Ekonomicheskaya Zhisn, No. 140, July 2, 1929.
A, J. Brandt Company
Transportation i"td the Transportation Equipment Industritt 249
to complete the Nizhni-Novgorod plant within fifteen months of conclusion
of a definite contract. Austin had built the Ford and other automobile plants
in the United States and had ample construction and engineering experience
in this field."
The contract was signed early in August; the Austin Company paid
$250,000 for drafting the project and a special compensation for supervising
construction and installation of equipment. Penalty clauses came into effect
if costs were higher than estimated, and there was a bonus for completion at
less than the estimated cost. Five engineers were delegated from Avtostroi
to work with Austin in drafting the project. Austin was able to negotiate a 'cost
plus* contract for supervisory operations, and compensation was calculated,
as a percentage of the total cost of all building operations, including equipment,
boiler room, foundry, and power station.39
Although these plants were built completely by Western enterprise and
equipped and initially operated by Western firms, the myth has been perpet-
uated that these were designed, built, and run by the Soviets. Even large
Western suppliers unwittingly reflect this belief. For example, the General
Electric house organ, The Monogram, comments on the automobile-manu-facturing units just described
:
When the Soviet Union built its mass production automobile and truckplants in Moscow and Gorki, where the Ziz and Gaz cars and trucks takeshape on moving conveyors, General Electric, in addition to supplyinghundreds of motors and controls for various high speed and special
machine tools, also supplied especially designed electric apparatus to aidthe mass production of vital parts. . . . For the mass production ofdrive shafts and rear axle housings for the Gaz cars and trucks GeneralElectric designed and built special high speed arc welding machines tosuit the exact requirements set down by the Soviet Engineering Com-mission,40
TELEGRAPH COMMUNICATIONS ANDFOREIGN CONCESSIONS
In August 1921 , a contract was signed with Det Store NordiskeTelgraselskab
(the Great Northern Telegraph Association) of Denmark for the operation of
telegraph lines between the Soviet Union and the Far East and all inter-
connections with foreign countries. A fee of 1 franc 20 centimes was payable
to the Soviet Union for each word transmitted. The firm had to undertake
repairs, keep the line in order, and install new apparatus capable of transmit-
" Torgovo-Promyihlennaya Gazeta, No. 169, July 26, 1949; and No. 353, November1. 19*9-
" Ekonomickeskaya Zhizn, No. 185, August 14, 1919.10 Monogram, November 1943.
25© Western Technology and Soviet Economic Development, 191J-X930
ting no words per minute; the existing apparatus could transmit only 20
words per minute,*1
Before the First World War the Indo-European Telegraph Company of
London operated telephone and telegraph lines across central Europe, through
Poland and Russia to Odessa, and through the Crimea to Persia, in addition
to a cable line under the Black Sea from Odessa to Constantinople. Service
was discontinued during the war. On April 12, 1922, the company signed a
concession agreement with the Department of Posts and Telegraphs and again
took over control of its lines through the Soviet Union. The lines appear to
have been in a reasonably satisfactory condition, and workable for 200 miles
northwest and 300 miles southeast of Odessa, into the Crimea. The under-
water cable was also in good condition. Only a short section between Erevan
and Tiflis required minor repairs.18
Three years later, in June 1 926, a similar concession agreement was concluded
between the Trans-Siberian Cables Company, a subsidiary of Great Northern,
for the renewed operation of its overland cable to China. The company
paid the Soviets one gold franc for each word transmitted along the line,43
The necessity for these concessions is rather obscure. The lines were
operating when the concessions were granted. In 1913 the Indo-European
cable to Persia carried one million words. This fell to 800,000 words in 1920
but was up to four million in 1923 and five million by 1926, when the con-
cession was concluded.
It was reported in Krasnya Gazeta that the telegraph concessions would be
of enormous advantage; without them Russia would be unable to connect to
the European lines, and in any event the existant lines would be repaired and
modernized. In addition to the word fee in gold the latest high-speed Western
apparatus would be introduced. This would produce 'millions of francs in
gold which will enable us to carry on trade with abroad.' 44 It appears in retro-
spect that existant traffic was straining the lines to capacity and that the
concession was a device to get equipment modernization.
THE RADIO CORPORATION OF AMERICATECHNICAL ASSISTANCE AGREEMENT
In March 1926, General Harbord, president of RCA, requested advice
from the State Department concerning a Soviet request to have RCA build
a modern high-power radio station in Moscow capable of communication with
11 U.S. Consulate in Riga, Report 1109, September 3, 1921. (316-107-29.)
" Minutes of proceedings of the 55th Ordinary General Meeting of the Indo-European Telegraph Company, Ltd., April 26, 1922, pp. 4-5.
" U.S. Consulate in Riga Report 3820, June 5, 1026.
" U.S. Consulate in Riga, September 5, 1921.
Transportation and the Transportation Equipment Industries 251
the United States, RCA was concerned, 'as it would . . . undoubtedly afford
an opportunity for their peculiar governmental doctrines to get additional
circulation in this country, ' and consequently: 'a station built by us, and
perhaps subsidized by credit facilities, enabling Russia freely to communicate
with the United States, might be a liability to us with the American public*
In later verbal discussions with the State Department, General Harbord
appears to have been hesitant concerning the Russian proposition, as it would
mean 'placing in the hands of Soviet Russia uncensored and untrammeled
direct means of communication between Soviet Russia and the United States
over which they could send messages of any kind, including propaganda.'"
It was then reported that the radio station in question would cost an
estimated $2.5 million and that the Soviets did not have a powerful enough
station for communication with the United States. A memorandum in the Far
Eastern Division files argues that the question of utilizing the station for
propaganda purposes or directing subversive activities in the United States
was more theoretical than practical." On April 9, 1926, the State Department
sent a letter to RCA indicating that the Department did not desire to express
any opinion concerning the proposed transaction.
The matter then lapsed until 1927. Another letter, dated May 25, 1927,
from General Harbord to the State Department, indicates that RCAanticipated further negotiations for a 'modern, high powered radio station
capable of communication with the United States.' Harbord requested an
indication as to whether the letter of April g, 1926 still held good in the light
of Soviet propaganda 'being promulgated from Soviet offices in London
directed against the United States and other countries and that evidence
*• Documents in this section are in the U.S. State Dept. Decimal File 316-141-714/78.The first part of Roll 141 contains material on Soviet propaganda and other
communications with the Near and Far East. At this stage of the negotiations, the
State Dept. view was that 'completion of the station in question would put into the
hands of the Soviet regime a very powerful instrument which might be used to the
detriment of the interest of the United States.' See Memorandum, Johnson, Far
East Division, March 1, 1926 (316-141-714). This view was to change considerably
over the next few years, for reasons which are not clear,
M There are however, hundreds upon hundreds of documents in the State Dept.files alone indicating this was very much a practical matter. The exact wording of
part of the memorandum is, 'I am inclined to the opinion that the theoretical
possibilities are not of such cogency as to justify our according to them a decisive
influence in this matter.'
The draft of the State Dept. letter to Harbord is also interesting. The draft
prepared by R. F. Keiley makes reference to the possibility that the station mightbe used for subversive activities in the United States, but this was scratched out
and does not appear in the letter that went to RCA. The erased paragraph reads
'With regard to the possibility of the utilization of the wireless station by the Soviet
regime to facilitate the direction of communist subversive activities in the UnitedStates, I am not prepared at this time to make any comments, I note from your
letter that you realize both the possibility and undesirability of such utilization.'
The final letter went out over the signature of Kellogg, Secretary of State.
252 Western Technology and Soviet Economic Development, xgij-ig^o
thereof had been furnished to our government.' The State Department reply
of June I indicated that their position remained the same.
RCA made an agreement with the State Electro-technical Trust on June30, 1927. This covered the transfer of patents and technical information.
In addition, RCA furnished the delegation with tenders and quotations on a
considerable quantity of radio apparatus, including a high-powered radio
installation for Moscow. These amounts quoted were to be paid 70 percent
cash, with the balance due over a period of five years at 6 percent. RCAagreed '. . . to grant exclusive licenses to the Trust to manufacture, use
and sell all patents, applications for patents and inventions owned or
controlled by the Radio Corporation of America and/or the General Electric
Company and Westinghouse, to the extent that it has, or will have, the right
to grant licenses in and for the territory for the Trust as hereinabove provided
for. . .:*>
It was agreed that meetings of RCA engineers and those of the Soviet
trusts would be held not less than once a year, and alternately in their respec-
tive territory, in order to exchange necessary technical information.
In addition, RCA agreed 'to furnish to the Trust complete manufacturing
information in respect to terminal apparatus for use in radio picture trans-
mission, including facsimile transmission, but not including television.'
Manufacturing information was supplied for terminal apparatus, including
'complete specifications, working drawings, description of process of manu-facturing, detailed basic calculations for construction of apparatus and the
privilege of sending the representatives of the Trust to factories, laboratories
and working stations of the Radio Corporation and General Electric Companyor parts owned and controlled by them.' 48
The agreement was made contingent on Amtorg placing a firm order with
RCA within four months of the date of ratification for a minimum sum of
$6oo,ooo.49 In brief, in exchange for an order valued at $600,000, RCAtransferred the sum of the technical knowledge accumulated by the leading
firm in the industry.
GERMAN AID FOR RECONSTRUCTIONOF PETROGRAD HARBOR
This was the largest port in Russia. Its facilities were severely damaged in
the Revolution—probably more so than any other sector of the economy.
As late as December 1921, most of the port was still out of commission.
" Ibid., Frame 740.*' Ibid., Frame 760.
** There was also a traffic agreement covering the use of radio circuits between theU.S. and the U.S.S.R. and the supply of high-speed automatic and duplex com-
Transportation and the Transportation Equipment Industries 253
Of eight cranes, two were continually out of order, two intermittently out
of order, and two unusable. The telephone system of the port could not be
repaired, 'on account of lack of cable, wire, and commutators.'50 The harbor
itself, although it was the main base of the Red Navy, was not freed of mines
until 192a. The harbor was not dredged from 1917 until 1923. German and
British steamers calling at the port in 1921 were serviced by lighters when
these were available. Although the port was a high-priority project for
repair and a port telephone system was an essential part of that operation,
Krasnya Gazeta admitted five years after the Revolution that nothing had
been done.61
In 1922, tenders were received from German companies for repair of the
port and the city facilities of Petrograd. Friedlam A-G handled the technical
work of the restoration of harbor facilities, while the actual reconstruction
was done by Julius Berger. Gas-works design was undertaken by Pintsch and
construction also by Berger. Canals, general buildings, and cement works
became the responsibility of Hecker, another German firm.*1 The city itself
was the subject of another agreement 'to make the necessary repairs to all
buildings that are now falling to pieces (and to) repair railways, the water and
sewage systems, and other institutions belonging to the municipality.' Germanengineers and equipment were brought in as the navigation system opened in
1922. As payment, the Germans received the right to develop the clay industry,
establish a brick plant and export lumber to Germany.53
By late 1922, Petrograd Harbor was being cleared of debris and put back
into operation. Groups of the unemployed were used for this job, together with
Latvian Communist Paity members." Repairs to the ice breakers went more
slowly. The only unit fit for service was named the Lenin; the Svyatogor and
the Ermak required extensive work.
RECONSTRUCTION OF THE RUSSIANSHIPBUILDING INDUSTRY
The shipbuilding yards at Petrograd and Nikolaev had been heavily damaged
in the Revolution. Nearly a!i such facilities were in a chaotic condition; this
mercial radio communications apparatus. The agreement, together With letters
from the International General Electric Co. and Westinghouse Electric Internationalreleasing patent rights in favor of the Soviet trusts, may be found in the U.S. StateDept. Decimal File 3i6-'4i-757/77i.
Krasnya Gazeta, December 39, 1921.
U.S. Consulate in Helsingfors, Report 21 10, May 15, 1922. (316-107-765.)
U.S. Consulate in Helsingfors, Report 135, August %i, 1922. (340-5-547/9.)
U.S. Consulate in Helsingfors, Report 2230, April 29, 1922 (316-107-751);Nan York Times, April 28, 1922, p. 3, col. 7.
IS Report, September at, 1922. (316-10-1018.)
254 Western Technology and Soviet Economic Development, igij-lp^o
sector suffered more than most. The Petrograd yards, previously known as
Nevsky (renamed the Lenin), Putilov (renamed Northern Shipbuilding), the
Baltic, the Izhorsky, and the Ochtinsky (renamed the Government Works
for River Ships), were grouped into the Sudotrust. In 1924, a technical
commission was appointed to consider ways and estimate the costs of clearing
the Petrograd yards. The commission had a number of German members,
and the Krupp engineer Ledeke did the actualjob of estimating costs of repairs.
This was a military matter under the Northwestern Military Industry Com-
mittee and part of the post-Rapallo military cooperation agreement. The
preliminary inspection of the Izhorsky yards, the largest, indicated that only
nine of the seventeen workshops were in operable condition; the others needed
complete rebuilding. Of four shipbuilding stocks, only the third could be used
for ship construction and then only if the associated workshops were also put
back into operation, Ledeke also estimated the cost of installing a submarine
department in the yards. The Krasny Putilovets plant was inspected to estimate
cost of installing turbine construction facilities for class 1 destroyers.68
Reconstruction of the Russian merchant fleet was slow. In 1925 the hulls
of 1 1 vessels were laid, in 1926 a further four and in 1928 another 17. By May
1929 only 15 had been completed and 30 were still under construction.66
No oceangoing ships were completed before 1930, except three 6,000-ton-
gross motor ships with engines made with German technical assistance. At
the same time two larger tankers, of 11,500 tons gross, were under construc-
tion in French shipyards with imported Sulzer engines. Somewhat larger
vessels, of 9,000 to 1 1,000 tons gross, were undertaken at Soviet yards, at first
with imported Sulzer engines and then with engines made with foreign
technical assistance." Again, the simple was built, while the complicated
was purchased. Interestingly enough, the graduated process is still going on.
In the 1960s Soviet yards were making all Soviet naval craft and tankers up to
about 35,000 tons. Larger tankers were made to Soviet order in Italy and
Japan and other special ships in British and Danish yards. Naval craft have
always been constructed in Soviet yards, with the use of imported shipbuilding
equipment, except for the World War II acquisitions noted in Volume II.
FOREIGN AID IN SHIPPING OPERATIONS
The first of a series of shipping agreements was made in January 1922
between the German Orient Line, the Soviet Volunteer Fleet, and Narkomv-
neshtorg (People's Commissariat of Foreign Trade). Under this agreement, the
M U.S. Consulate at Hamburg, Report No. 417, December 12, 1925.
" Izvestta, May 12, 1929.
" Details from Motor Ship Reference Book (London, Temple Press) years 1925 to
1930.
Transportation and the Transportation Equipment Industriet 25 5
tonnage of the Orient line was handed over to the Soviet Volunteer Fleet on
preferential rate terms (20 percent lower that market rates). This enabled the
fleet to establish a service between Hamburg and Odessa, Novorossisk, and
Constantinople.5*
Russtransit was a German-Russianjoint-stock mixed company also organiz-
ed in 192a, between the Commissariat of Foreign Trade, Ways, and Com-
munications, and a group of five German firms, including the Orient Bank,
Wenkhouse of Hamburg, and the Hamburg-Amerika line. The company
established shipping routes between Germany and the Near East via the Baltic,
the Marinsky canal system, the River Volga, and the Caspian Sea. This reduced
the shipping time between Hamburg and Enzeli on the Caspian from a period
of 4-6 months to only 3-4 weeks. Russtransit purchased several 10,000-
ton vessels to operate on the river, canal, and lake routes.5* In 1923 the turnover
was 1 .2 million rubles, on which the profitwas 200,000 rubles.' The Hamburg-
Amerika line put up 50 percent of the capital and received 50 percent of the
profits.*1
There were also some smaller shipping concessions. The Bergen Steamship
Company was organized by the Soviets and the Russian-Norwegian Naviga-
tion Company in 1923 to provide shipping services for Arcos.*1 Another
agreement was made with a German company, August Bolton, in 1924, and
in April 1926 negotiations were concluded for a shipping concession on the
River Volga to be operated by an Anglo-Dutch group headed by the Cunard
line.8' This was a mixed company, with the share capital split 50:50, to operate
alt passenger and freight services on the Volga. All boats, docks, workshops,
and stores were transferred to the new company. Cunard was required to
invest cash equal to the value of the boats and plant turned over to the company.
The latter formed the Soviet contribution. The management was exclusively
in the hands of Cunard, which had the right to hire and dismiss personnel.
The Soviet government was not entitled by the terms of the agreement to
interfere in the internal operations of the company."
Shipping tonnage was almost completely destroyed by the Revolution, and
even in 1930 only 4 percent of Soviet trade was being handled in Soviet flag
vessels. The mercantile fleet was gradually built up by purchases abroad and
not in the 1920s by domestic production of ships.
" IS Report, January 19, 1922. (316-108-0006.)* Ekonomichetkaya Zhizn, No. 116, May 27, 1923.*° Ekonomicheskaya Zhizn, No. 151, April 3, 1924.
11 Hilger, op. at., p. 178. Hamburg-Amerika Line also owned 50 percent of Derutra(German-Russian Transport Company), another mixed Type II operation.
" Ekonomicheskaya Zhizn, No. 57, March 15, 1933-
" Pravda, No. 175, August 3, 1924.
" U.S. Consulate in Bremen, Report April i, 19*6. (316-108-1668.)
256 Western Technology and Soviet Economic Development, 1917-1930
THE BEGINNINGS OF THE RUSSIAN AIR LINES
The first Russian air line was the Moscow-Konigsberg (Germany) route,
started in August 1922 and, according to Biednota, 'created according to the
plan of Red Pilot Grant and exploited exclusively by the RSFSR,'66 In fact
the line was installed and operated by the mixed company, Deruluft (German-
Russian Aviation Company), and used German and Dutch (Fokker III)
aircraft. Deruluft was formed specifically to conduct a regular air service for
passengers, mail, and freight between Germany and Moscow. It had a stormy
life and, as Hilger points out, the line survived only 'because of mutual
necessity.'*8
Dobrolet, an all-Russian company, was started one year later with German
technical assistance. This company used Junkers aircraft, made in the U.S.S.R.,
throughout the 1920s. The third airline was Ukr-Vozdukh-Put, a private
company formed in the 1920s and operated on Ukrainian routes up to 1929.
The company used Dornier Comet II and III aircraft."
Table 14-3 RUSSIAN SCHEDULED AIRLINES IN 1925
Route Operating company Equipment
Moscow-KonigsbergMoscow-KharkovKharkov-RostowKharkov-OdessaKharkov-KievKagan-TazbazKagan-DushambeBaku-Enzeli (Persia)
Baku-Leningrad
Deruluft*Ukr-Vozdukh-Put**Ukr-Vozdukh-Put"Ukr-Vozdukh-Put**Ukr-Vozdukh-Put**Dobrolet***Dobrolet***Junkers****Junkers****
Fokker 111
Dornier Comet III
Dornier Comet III
Dornier Comet III
Dornier Comet II
JunkersJunkersJunkersJunkers
Source: U.S. State Dept. Decimal File, 316-164-244, 372.
Notes: "Type II concession.
••Private company, expropriated in 1920.
•••All-Russian company.
••••German company.
In additioruto the three regular airlines, the Junkers company operated
some routes with its own equipment under a leasing arrangement. By the
middle of the decade, the air fleet consisted of just under 100 passenger planes
(Junkers, Dorniers, and Fokkers) together with another 50-80 light planes.*8
The first Soviet-built planes, copies of the British De Havilland observation
" Biednota, August 26, 1922.
" Hilger, op. tit., p. 178•' U.S. State Dept. Decimal File, 316-164-205.
» U.S. State Dept. Decimal File, 3:6-164-225.
Transportation and the Transportation Equipment Industriet 257
plane, were produced in 1925 and at once used on a Moscow-Peking propa-
ganda air expedition. The expedition was billed a* using all-Russian-built
planes, whereas in fact it used modified Junkers and De Havilland copies
with imported engines."
" U.S. State Dept. Decimal File, 316-164-391-
CHAPTER FIFTEEN
German-Russian Military Cooperation and
Technology
The Versailles Treaty forbade Germany, equipped with some of the most
extensive and advanced munitions plants in Europe, the manufacture of any
armaments. Soviet Russia was isolated and under attack from within and
without. Her armaments plants operated only intermittently, and she had a
pressing desire to expand military production for internal control and world
revolution. The obvious came to pass.The German-Russian military coopera-
tion of the 1920s and 1930s has been documented elsewhere. 1 One aspect of
this transfer has, however, been missed. The military transfer was part of a
much wider economic cooperation and included the reconstruction of Russian
industry as well as purely military construction. It is the industrial aspects
of the military cooperation which are of interest to this study.
In April 1921, Menshevik Victor Kopp reported to Trotsky concerning
his trip to Germany. Kopp had visited the armaments plants of Krupp,
Blohm und Voss, and Albatross Werke and found them ready to supply both
equipment and technical assistance for the manufacture of war materials.
Post-Rapallo negotiations widened this visit into full-blown cooperation on the
economic aspects of military production. 2 Purely military production was
placed under the control of Gesellschaft zur Forderung Gewerblicher Unter-
nehmungen (or GEFU) with a capita! of 75 million reichmarks.8 This
1 The most detailed study is in C. F. Melville, The Russian Face of Germany (London
:
Wishart Co., 1932). A more recent book by J. W, Wheeler-Bennett, The Nemesis
of Power (New York; St. Martin's Press, 1964), is a useful supplement. GustavHilger and Alfred G. Meyer, The Incompatible Allies (New York; Macmillan,I 9S3)i 's 'ess tnan forthright. Hilger was German economic attach^ in Moscowthroughout this period but reduces the cooperation to 'scholars and journalists
with axes to grind.' {Fn., p. 189.)
* Trotsky Archives, Harvard University, Document T-666# .
Hilger, op. eit,, GEFU functions after 1925 w*re taken over by WIKO (Wirt-
schaftskontor).
German-Russian Military Cooperation and Technology *S9
production included reopening the Junkers aircraft plant at Fill, developing
poison gas plants, establishing factories for production of artillery and shells,
tanks, and submarines. Further, the Soviets themselves placed heavy emphasis
on military production and grouped many of the best-equipped tsarist works
as a part of RVS, including the Putilovets, Koppel, Lessner, Phoenix, Atlas,
and Pneumatic plants.4
TSARIST AND JUNKERS AIRCRAFT TECHNOLOGY
Aircraft development and construction had made vigorous progress in
tsarist Russia under such designers as Igor Sikorsky and V. Slessarev, but the
industry collapsed completely after the Bolshevik Revolution. There was no
indigenous Soviet aircraft technology in the 1920s and the ill-fated 'Maxim
Gorki,' designed in 1934, was the first indication of a revival in a truly remark-
able prerevolutionary activity.*
Igor Sikorsky (since the Revolution a resident in the United States)
had been the nucleus of a promising aircraft technology. In 1913 he designed
and built two planes offour-engine design. The first was the Russki Vityazyi,
a five-ton aircraft with room for seven passengers, built in St Petersburg;
the second Sikorsky design was the 'Ilya Mourometz', with four 100-h.p.
engines, a payload capacity of 1,500 kilograms, and a maximum speed of 55
m.p.h. Lack of more powerful engines was the impetus behind the four-engine
design; a similar restriction made the 'Maxim Gorki' an eight-engine (750 h.p.
each) plane rather than the originally planned six-engine (1,000 h.p.) plane.
The four-engine Ilya Mourometz was built in Russia as a bomber, and
about 75 went into service in World War I. Wing span was 102 feet: only
21 inches less than the Boeing B-17 of World War II. Engines were a restrict-
ing factor, and 11 different makes were used including the Russian-built
Baltic. Production of these planes was in fact limited by engine production.*
This interest in aviation was adopted by the Soviets. After World War I
the German aircraft manufacturers Junkers, Dornier, and Rohrbach were
forced, under the 'London ultimatum' to move their plants and personnel
abroad. Junkers-Werke went to the U.S.S.R. and, under the April 1922
* U.S. State Dept. Decimal File, 316-107-391.
* Interest in aviation developed early in Russia. Curtiss made a trip in 191a and
estimated over 100 aircraft in use by the Imperial Russian Army at a Sevastopol
base. When the United States entered the war in 1917, its combined Army and
Navy air forces consisted of little more than 100 planes. ['Aviation in South Russia,
1912'. (316-164-170).]
* Ibid., and H. Hooftman, Russian Aircraft (Fallbrook: Aero, 1963), pp. 143-3-
zSo Western Technology and Soviet Economic Development, 191J-1930
military agreement reopened the prerevolutionary aircraft plant at FiH in
mid-1923. Machinery was obtained from the evacuated section of the Russo-
Battic works in Riga and instalted at Fiji by Junkers engineers. In the tsarist
era, the plant had made RB-150 h.p. motors for the Ilya Mourometz. Under
Junkers management the plant built Mercedes-Benz motors under license
and the all-metal Junkers-design aircraft.7
Thus the famous all-metal Junkers aircraft was under construction in the
Soviet Union some ten years before Lockheed and Douglas brought out their
first all-metal designs in 1933. The Soviets can legitimately claim that the
first all-metal plane was produced in the U.S.S.R.
Even before Junkers had moved, the Soviets were buying aircraft engines,
Deutz Type UMX and complete aircraft abroad. Some 280 Fokker D-7
fighter aircraft were ordered and delivered from Holland.8 In July 1924, the
Junkers Company opened up a second aircraft plant in Tver Province under
a 49-year concession arrangement, with the right to export airplanes. All the
test pilots and engineers were Junkers personnel from Germany.8
By 1924 the Soviets began to make their own wooden aircraft, one year
before the first Russian bus was produced. At first they purchased Fokker
drawings, the De Havilland prototype, and imported engines. They then used
engines domestically manufactured with German (Deutz A-G) technical
assistance. Machine tools for the aircraft plants were supplied by Nielsen and
Winther in Denmark.10 Spruce for building the wings and fuselage was
imported from the state of Washington—which in itself created a small stir
in Washington, D.C." The most successful of these early afforts was the copy
of the De Havilland Tiger Moth, still in use in 1966 arid variously called the
R-i, U-2, and today the PO-2. Up to 1948, when production ceased, several
thousand had been produced in about 20 versions. It was first used as a
military observation plane, then as a night bomber in World War II, and is
presently used as an ambulance plane and crop duster. Production of simple
planes such the Tiger Moth R-i before automobiles is not illogical. Construc-
tion of such a plane is a very simple matter involving wood and canvas, and
is much less complex than automobile production. Utilizing first imported
engines and then engines made with German technical assistance, the Soviets
trained their cadres of aircraft engineers and technicians.
IS Report, August 17, i9»3- (316-108-641/2.)
U.S. State Dept. Decimal File, 316-164-193-
U.S. State Dept. Decimal File, 316-164-215.
U.S. State Dept. Decimal File, 316-164-208.
Telegram from Governor Hart of Washington to the President, January 24. '923.
(336-129-332-)
German-Russian Military Cooperation and Technology 261
German technical assistance, supplemented by assistance from other
countries, was quite extensive. Barmine recounts how, because of the large-
scale purchases of aircraft equipment and components in Europe, the aircraft
manufacturers signed technical-aid contracts, trained Russian engineers and
sent their specialists and designers to the U.S.S.R. to build and equip aircraft
plants. Barmine singles out the French aircraft industry to 'share with the
American the credit of helping the U.S.S.R. to build its air power.'1* Technical
assistance in the manufacture of aircraft parachutes, and particularly the
packing techniques, was provided by Irving Air Chute Co., Inc., of the
United States. 13
Numerous efforts, some successful, were made to obtain American aircraft
engines and, especially, large quantities of the war surplus Liberties available
in the domestic United States market at $1,000 each. The latest Curtiss
engines were also secured.
In the early 1920s, the Hall Scott Motor Company sold a large lot of
aeronautical equipment to the Vimalert Company of New Jersey; this found
its way to the Soviet Union." In late 1925 some thirty cases of aircraft engines
were shipped by Amtorg to Autoimport in Moscow. These were assumed by
the State Department to be Liberty engines, not automobile engines, as they
were purchased by Zautinsky, the aviation purchasing agent for the Soviet
Union and shipped from Little Rock, Arkansas, where the large quantities of
surplus Liberty engines were stored and sold.16 This shipment was followed
by another thirty-three Liberty engines on May 6, 1926 via the Hamburg-Amerika Line to Leningrad. These had been purchased by Zautinsky in a
very roundabout manner. They were originally sold to the Leoning Aircraft
Company, resold to Ayers Airco, then to a dealer named Epstein and another
dealer named Kelly."
Table 15-1 SOVIET PURCHASES OF AMERICANAIRCRAFT ENGINES, 1926-9
Date Number shipped Type and make
Nov 8, 1925 30 Liberty 400 h.p.May 6, 1926 33 Liberty 400 h.p.Dee 27, 1929 10 Curtis Conqueror
Source: U.S. State Dept. Decimal File, 316-164-267, 164-289, 164-317.
11 Barmine, op. cit., p. 179." A. A. Santalov and L. Segal, Soviet Union Year Book, 1930 (London: Alien and
Unwin, 1930), p. 358." U.S. State Dept. Decimal File, 316-164-250." Ibid.11 U.S. State Dept. Decimal File, 316-164-250.
262 Western Technology and Soviet Economic Development, 1917-1930
These comparatively small purchases were followed by very intensive
efforts to obtain a larger quantity of the Liberty motors, if possible at the low
price of $1,000. However, it was reported that the Soviets were willing to pay
up to $10,000 per motor and give a bonus to anyone able to acquire a substan-
tial quantity at an export price of 82,000." One effort to buy a batch of 200
was made by the Payne Export and Import Company of New York in August
1027 The State Department indicated it did not look with favor upon the
transaction. Payne later tried to buy through the Vimalert Company At the
same time Fox and Company attempted to purchase 700 on behalf of the
Soviets The Chase National Bank of New York, in an aside from its banking
business, was activelv trying to arrange export of Liberty motors at $2,000
each to the U S S.R. 18 A few weeks later one Max Rabinoff, a dancing
instructor in New York, tried to buy 488 Liberty motors, allegedly for use by
Deruluft (the German-Russian mixed company) on its nights to the Soviet
Union. However, Rabinoff wanted the motors shipped to the U.S.S.R. to
•avoid customs duties.'" None of these orders was filled; it would appear that
the Department of Justice was one step ahead each time. However, in 1929
the Curtiss Company filled an order for ten Curtiss Conquerers with spare
parts-a much more advanced engine than the Liberty." Just two years
previously, in June 1927. the State Department had indicated that it .did not
look with favor on the sale of 100 Curtiss type D-12 engines to the U.b.fa.K.
This was a situation parallel to the shipment of a high-powered radio station
to the Soviet Union.
General von Seeckt, Chief of the German General Staff, had attempted to
make contact with the Soviets before the Treaty of Versailles, but H.lger
places the first cooperation at 1921, originating with a Junkers request for
assistance from the German government in the establishment of an aircraft
plant in Russia. Special Group R of the German War Ministry was established
for military collaboration and gave the necessary political guarantees and finan-
cial assistance to Junkers. A branch office of Group R was established m
Moscow and known as Zentrale Moskau; it operated under Neumann,a
pseudonym for Major Oskar Rittcr von Niedcrmayer.^ The latter was head
of Zentrale Moskau until 1932 and passed a stream of military information
back to Germany, as he was far less restricted than the official m.htary attache
» Department of Justice Utter to Miliary Intelligence (U.S. State Dept. Decimal
File, 3 16-164-271).
18 U.S. State Dept. Decimal File, 316-164-256.
i* U.S. State Dept. Decimal File, 316-164-183.
20 U.S. State Dept. Decimal File, 3i6-i64-3i7^
« US State Dept. Decimal File, 316-164-230-, .. .
» iSerV cit, P . ,04. The German Foreign Office used »UP«*«« cla-ficat.on
%'for all documents in contravention to the Versatile* Treaty.
Geman-Rwtian Military Cooperation and Technology 463
at the German Embassy. The latter, according to Hilger 'had no opportunity
to talk to the constant stream of German Army personnel passing through . .
.
on their way to or from different places within the Soviet Union.'*8 Hilger, as
economic attache, may have been in a similar position of isolation, because he
contributed very little to our knowledge of the extensive economic transfers
of the 19208.**
THE RED AIR FORCE, 1929
Total personnel in th= Red Air Force in 1929 numbered approximately
30,000. Purely military aircraft numbered 1,200, of which 160 were with the
Red Navy. Table 15-2 su-imarizes Red Air Force and Navy equipment, andits origin.
Table 15-2 RED AIR FORCE EQUIPMENT AND WESTERN ORIGIN, 1929
Type of plane Origin
Observation Soviet-made R-i, copy of British De Havilland.Attack Fokker D-XI and D-XIII, imported
French Nieuports.Bombers Farman-Goliath (So) and a few Rohrbachs, imported.Navy (Black Sea) Fokkers D-XI (Holland).
Ballilo (Italy).
Dornio-Wal (Italy).
Navy (Baltic fleet) Junkers J-io (from Sweden).Fokkers D-XI (Holland).
Aircraft engines
R-i observation M-5, made with German assistance.
Some imports from Bayerische Motor Werke.Attack 450 h.p. Hispano-Suiza and German makes.
Source: U.S. Military Intelligence Report, Combat Estimate; Russia.
Table 15-2 can be summarized briefly. The only complete aircraft built
in the U.S.S.R. was the R-i light observation plane. All other aircraft andengines were imported—from every country manufacturing aircraft. In otherwords, the Soviets were able to compare, test, select for purchase, and at somepoint manufacture the best features from planes manufactured in all Westerncountries.
RUSSIAN-GERMAN TRAINING CENTERSThe main German air base in the Soviet Union was at Lipetsk. It was
initially funded in 1934 by an appropriation from the German war budget and
" Hilger, op. dt. t p. 179.
" The United States received excellent information from its Riga Consulate.
264 Western Technology and Soviet Economic Development, 1917-1930
further funded by an appropriation from the Ruhrfond (Relief Fund for
Ruhr Workers). This fund was administered by Group R. Lipetsk was used
as a base for final pilot training, and the testing and development of new planes
by both the Germans and the Russians. Nearly everything was shipped from
Germany, either by Derutra or Russgertorg by a circuitous rail route. Only
very basic materials such as wood and stone were supplied by the Soviet
Union. At the end of 1924, there were about 60 German pilots and another
75-100 technical personnel stationed at Lipetsk. This group was known as
the Fourth Squadron of the Red Air Force.85
Clause two of the German-Russian Military agreement required dispatch
of German naval instructors to Russia to train the Red Navy. In mid- 1923
an intercepted telegram from Moscow to Berlin ordered the 'military attacbi'
in the Soviet Berlin Trade Delegation to arrange for the transfer of 1,200
German naval instructors.26
BERSOL POISON GAS PRODUCTION
A considerable amount of work was done on poison gases under the tsar.
Liquid chlorine, the major poison gas used in World War I, was made in eight
different plants. The difficult technical problems involved in handling chlorine
'
gas—especially liquefaction—were solved by Russian chemists, 'since the
methods and techniques used in Western Europe were unknown to us.'27
Production was so successful that a chlorine over-supply developed, and by
summer 1 9 17 there was a tank reserve of 1 00,000 poods. Phosgene was produced
at five plants under the supervision of Professor E. I. Spitalsky. Apart from
use as a poison, gas was useful in synthesis of organic pigments and drugs.
The work was done under the supervision of the Commission on Poison
Gases, which also established an experimental factory under the directorship
of I. Klimov, who continued as director after the Revolution.
Ipatieff was for a while chairman of the Russo-German commission which
negotiated production of explosives and poison gases in the U.S.S.R. by
German companies. A mixed commission of three Russians and two Germans
carried out the agreement. The tsarist poison gas factory at Samara had been
only partly built by the time of the Revolution, and Ipatieff was sent to
" G. Frcund, Unholy Alliance (New York: Harcourt, Brace & Co., 1957). P- 2°5
el seq.
"US State Dept. Decimal File, 34°-S-&7<> (intercepted telegram, June 1913).
" V. I. Ipatieff, op. cit., pp. 212-235. It is noteworthy that tsarist Russia had little
help from the Allies in the development of gases or gas masks. The Kumant-
Zelinsky gas mask was a purely Russian development, and although it had detects
it was more effective than the French mask and equal y as effective as the German
and British. The tsarist Chemical Committee supplied some 15 million ot this type
of mask. (Ipatieff, op. cit., p. 225.)
German-Russian Military Cooperation and Technology 265
evaluate the plant for purposes of the German agreement and to determine itsuse in the production of both chlorine and phosgene. Ipatieff received instruc-tions not to underestimate the plant's value, since the greater the originalvalue, the more the Germans would have to invest in the agreement. AlthoughIpatieff felt the plant valueless, he assessed it at six million rubles. The Germanvaluation quite naturally was considerably less. The contract was awarded bythe German government to Stolzenberg, owner of a Hamburg gas factorymaking phosgene, chlorine, and ammonium chloride. The Samara plant wasrenamed the Trotsky and rebuilt by German engineers. Other institutionsand schools were formed to handle other aspects of poison gas productionand use.28
Soviet interest in gases was intense. A special military agent was maintainedwithin the Berlin Trade Delegation solely for the purpose of collecting foreigninformation on poison gas and allied materials. Ipatieff recounts how a Dutchengineer offered to bring the Soviets a new substance effective against allsmoke and poison gas vapors. Reports were sent back on German attemptsat Essen to manufacture a gasproof fabric. 29
Not much appears to have been achieved. The Trotsky plant was a failure.In 1927, Voroshilov commented that 'our entire chemical industry for militarypurposes has yet to be built up However, he placed great emphasis onchemical warfare and aviation as the weapons of the future and wanted toequip 'every laborer and every toiler' with a gas mask.30
PRODUCTION OF SHELLS, ARTILLERY, AND SUBMARINESFOR THE RED ARMY AND NAVY
The third major task of GEFU was supervision of factories at Tula,Leningrad, and Schlesselburg for production of artillery shells at the rate of300,000 per year." In 1927 it was reported that seventeen plants for the con-struction of artillery were being built by Krupp in central Asia.8*The existenceof such a large number of shell and artillery plants is credible in the light ofthe Soviet recoil to the German Barbarossa attack of 1941. The Russiancounterattack in the winter was made before Western aid flowed in quantityand was made by utilizing large massed fronts of artillery and tanks of asingle model.
" /Wrf.,p. 3 8s." Ibid., pp. 459-60." Izvestia, No. 97, April 30, 19^7.
nl,ntf™.™titIe
fS™i°%en¥?n
>based <"» interviews with workers at the shell
^ plants, was isBued by the Social Democratic Party in 1927.U.S. Embassy in Stockholm, Report 66, August ia, , 9I7 . (316-60-1003.)
266 Western Technology and Soviet Economic Development, Tgi^-I^O
Submarine construction is less well documented. It is known that Krupp
estimated construction of submarine pens at Leningrad.31 Bailey holds that
U-boats were built at both the Leningrad and Nikolaevsk yards by German
companies.3*
EQUIPMENT OF THE SOVIET ARMEDFORCES IN 1929
In 1929 the Soviet army comprised 1.2 million men. It was largely equipped
with prewar or foreign weapons. The standard rifle issue was the 1891
Russian .30 supplemented by Browning automatic pistols and a mixture
of Russian, French, German, and British hand and rifle grenades.35 The
one-pound guns used in infantry regiments were MacLean or German makes.
Heavy machine guns were either Maxim or Colt. Light machine guns were
either Browning, Chaucgat, or Lewis. Artillery was comprised of the 1902
Russian 76 mm, the 4.5-inch English howitzer, and 1909 model Russian 4.8
howitzer. The basic anti-aircraft equipment was the 1916 Russian 76 mm and
the Vickers 40 mm. 3' Tanks were the Renault, built with technical assistance
at Fili, and a Russian-built copy of the British Mark IV. A few Fiat tanks
had been purchased from Italy.
Military strength in 1929 was, then, based entirely on foreign weapons
and military production technology. Further development, at least at any
acceptable rate, was possible only with Western assistance. Without it, self-
generating economic development would have been prohibitively slow.
Russia was without an automobile industry, without a useful aviation industry,
without modern iron, steel, and metalworking facilities, and much else with
which to forge a military structure. But, as the Military Intelligence estimate
pointed out, 'if her economic and military recovery continue at the present
rate in a few years she will be a formidable enemy.' 37
See chap. 14.
G. Bailey, The Conspirators (New York: Harper, i960).
The Russian i80I 3-line model rifle was the subject of Clause i of the 102* German-
Russian military agreement.
Military Intelligence Division U.S. War Dept.. Combat Estimate: Russia (19*9)-
U.S. State Dept. Decimal File, 316-110-347.
CHAPTER SIXTEEN
Soviet Trading Companies and the Acquisition
of Foreign Markets
Acquisition of Western technology and skills required, of course, a sourceof finance. Some large-scale inter-government loans were made; of these, the
1925 German loan of 100 million marks and theio.26 loan of 300 million markswere the largest. Unpublicized private business loans and credit were muchmore common and more important. Export of gold was not at first considereda generator of foreign exchange. After 1925, coincident with the Lena Gold-fields agreement, the export of gold became a valued means of acquiringforeign technology. Further, the extensive collections of confiscated platinum,silver, rare metals, tsarist crown jewels, plateware, and ikons gathered up bythe Bolsheviks were sorted and catalogued by yet another Western expert,
H. J. Larsons, Deputy Chiefof Currency Administration, and then exported. 1
The primary source of foreign exchange during the 1920s was export ofraw materials—especially petroleum products, furs, minerals, and foodstuffs.
Export offood to rf gain prewar markets was implemented even while Americanrelief was importing supplies into Russia for the famine areas. In one case,
the Soviets were loading a boat with Ukrainian wheat for export to Germany,while alongside war a boat from the United States unloading American wheatfor the famine area-, to the north of the Ukraine. The chicken industry wasnationalized at an early date and eggs assembled for export to Europe byRussot and other mixed Type II concessions.
These markets were entered by using mixed joint-stock companies whichspecialized in trading. The Soviets normally held a 50 percent interest and the
foreign partner the i?rLer 50 percent. Germany, Austria, and the UnitedStates each had two ;;< these general trading companies in the early 1920s.
1 H. J. Larsons, An Exp.'rt in the Service of the Soviets (London: Benn, 1929).
268 Western Technology and Soviet Economic Development, 1917-1930
Turkey, Poland, Italy, and Persia had one company each. The foreign firm
advanced credits to the Soviet organizations, found the buyers and arranged
transportation and storage. In some cases the foreign partner undertook
assembly within the Soviet Union. In addition to these general trading com-
panies, there was a more numerous group of specialized trading companies
with agreements covering trade in specific commodities. In both cases the
Soviets profited by the skilled knowledge and trading skills of the Western
partner until such time as they were able to organize their own institutions
for foreign trade.
By far the more important of the United States general trading companies
was Allied American, with its Berlin subsidiary, Alamerico. Simon Sutta was
a much smaller and short-lived arrangement.
ALLIED AMERICAN CORPORATION (ALAMERICO)
The Hammer famity held three concessions in the Soviet Union. One
covered the Alapievsky asbestos deposits; the second, granted in July 1923,
was a general trading concession,8 and the third was the pencil and stationery
concession. The Hammers had been trading with the U.S.S.R. under a
Soviet trading license, since 1918; the concession gave them the right to
establish an office in Moscow and represent a number of large American
companies. Previous to the grant of the concession, Hammer had been des-
cribed as the 'Soviet trade representative in the United States.'*
The Hammer trading concession represented thirty-eight large American
companies. These had an aggregate capitalization in excess of one billion
dollars, and included Ingersoll-Rand, American Toot Works, Heald Machine,
Ford Motor Company, U.S. Rubber, U.S. Machinery, and other companies
of similar stature.1
Hammer also made contracts in the United States for the sale of Soviet
raw materials. The right was granted to conduct operations independently
of the government trade monopoly: quite a remarkable situation, given the
vehemence with which the Soviets normally defended their monopoly on
trading rights. The only limitation on Hammer operations was that imports
into the Soviet Union could not exceed exports. It appears that the Hammer
concession was represented within the U.S.S.R. by Soviet organizations. For
example, in the Northwestern oblast, the concession was represented by the
Northwestern Trade Association, 'which institution will carry out all the
transactions of the Company.'* The concession was financed by the U.S.S.R.
1 Ekonomkheskaya Zhizn, No. 51, March 3, 1926 (advertisement),
3 New York Times, November 6, 1021, p. 23, col. 3.
« New York Times, July 9, 1923, p. 3, col. 3.
» Pravda (Petrogmd), No. 189, August 24, 1923.
Soviet Trading Companies and the Acquisition of Foreign Markets 269
and 50 percent of the profits accrued to the Soviet Union. It was rare at that
time for the Soviets to finance operations originating outside the Soviet Unionand operated by foreigners ; the only other example was the Swedish locomotivefirmof Nyquist and Holm,which received significant financialaid in itsprogramof locomotive production for the U.S.S.R. However, as has been pointedout, Andersson, the director of the plant, had a special relationship with the
Soviet Union.
The Board of Directors of Alamerico contained a Russian member,G. L. Rappaport, a member of the People's Commissariat of ForeignTrade.* A rather curious letter appeared in the New York Times shortlyafter the agreement, maintaining that the concession was neither a concessionnor a mixed company but 'a temporary commercial agreement.'7 As eventsturned out, Alamerico was precisely that: a temporary commercial agreement.The motivation for the letter and the source of the information can only beguessed. One might infer that it was inspired by Vneshtorg to avoid a conflict
with Glavkontsesskom.
Alamerico filled the gap for the Soviets between the demise of the SovietBureau in New York and the establishment of Amtorg; as Amtorg found its
feet, Alamerico faded into the background, and in 1926 the agreement was notrenewed. In a six-month period in 1925-6, Alamerico exported $221,000, onlytwice the amount of the purchases ofLena Goldfields concession in the UnitedStates in the same period.8 Clearly the Soviets were never hampered by lackof United States recognition insofar as having a trade organization in theUnited States; they were able to operate through individual American com-panies in a way denied the United States in the Soviet Union.A formal trade agreement of a specialized nature was the mixed Type II
joint-stock company which operated under the name of the Russian-AmericanEngineering and Trading Company (RAITCO), formed in mid-1923 byAllis-Chalmers Manufacturing Company, the Bucyrus Company, and theSullivan Machinery Company in the United States and the People's Com-missariat for Foreign Trade (Vneshtorg) in the Soviet Union.*
Clause II of the agreement described the objectives of the concession as toimport into the Soviet Union from the United States articles required for
'equipment and supply of agriculture and all kinds of industrial constructionwork,' and to introduce 'American working methods' and 'projects,' ClauseIII described the ways by which these objectives might be achieved: byrepresentation of American firms—in particular, industrial, construction,
• ibid.
1 New York Times, July 18, 1913, p. 14, col. 6.
• Amtrikamkaia torgovlia 1 promyihtennost' (Amtorg Trading Company, 1926).• The agreement is in the U.S. State Dept. Decimal File, 3 1 6-1 3 1-70/S4.
a?© Western Technology and Soviet Economic Development, 1917-1930
engineering, and financial firms-by organization of a staff of experts, and
by the import of articles required for the equipment of Russian industry. The
company was to submit proposals and initiate discussions with the necessary
Soviet institutions, and for this purpose might establish offices, warehouses,
and branches within the Soviet Union.The capital stock was divided equally,
and each party was represented by an equal number of directors.
The first 10 percent of profits went into a reserve fund to sustain possible
losses The balance (not to exceed 40 percent of the capital stock) was to be
divided equally among the parties. Of the excess, 75 percent was to go to
the Soviet government and 25 percent to the group of firms. Altogether there
were 24 clauses detailing precisely the methods and conduct of the business.
From the viewpoint of the Western firms this was a logical move to protect
their markets in the Soviet Union, given the continued operation of the
International Harvester plant in Moscow. Indeed, the Soviets may well have
had such a reaction in mind.10
UNITED KINGDOM TRADING COMPANIES
Arcos (the All Russian Cooperative Society, Ltd.) was formed in London
on July 11, 1920 with a nominal capital of £15.000, allegedly to act as the
representative of Russian cooperatives in the U.K., to carry on business as
an export-import merchant, and to provide all services, in the broadest sense
necessitated by these functions. Of the stock, 65 percent was personally held
by Leonid Krassin, the Soviet trade representative. This agreement was
followed by another all-Soviet undertaking, the First All Russian Import and
Export Company, Ltd., also a trading company. Then followed a series of
trading companies in joint ownership with British and other foreign share-
holders. . ....
There was considerable criticism in the British press concerning the validity
of Arcos calling itself a cooperative society when 485,996 of the 500,000
shares issued were held by Krassin and his deputy, Klisko. It was argued that
Arcos was in effect the Russian Trade Delegation in the United Kingdom
and had no connection with the Russian cooperatives. The position was
confused by the appearance of a second company also claiming to represent
the Russian cooperatives. Subsequent events proved the cntrctsms correct.
Arcos became the focal point of Soviet trade (and subversion) in the U.K.
but the subterfuge was used to gain entry, in the same way that Amtorg on
entry into the United States denied that it had connections with Soviet trade
organizations and argued that it was solely a business organization.
» International Harvester's plant was expropriated for the first time in 1914. I*"
the signing of the agreement with Allis-Chatmcrs. Bucyrus, and SuU.van.
Soviet Trading Companies and the Acquisition ofForeign Markets 371
In 1921 capital in Arcos was raised to j£100,000, and Arcos began to sell
Russian goods as well as to buy British manufactured goods. In 1922 capital
was increased to £500,000 and in 1923 to 10 million gold rubles. The London
office then employed some 500 people, about one-third of them Russians.
Branches were scattered throughout the U.K. and Europe, as well as Russia.
The guise of a cooperative representative was dropped when it appeared
that deportation proceedings would not be continued—one of the dangers
avoided by entering under the shield of a mixed company including foreign
partners. By 1925 the company described itself as follows: 'The commercial
organization of Arcos, Ltd. is of such a manifold and flexible character that
it is able to carry out the most diverse transactions for the importing and
exporting bodies of the Soviet Union.'11
Four years after its rather tentative entry into the United Kingdom, Arcos
was handling 86 percent of all Soviet purchases in the U.K. 'made by all the
companies, economic bodies and trading organizations carrying on Anglo*
Soviet trade.'12 Only 13.7 percent of the exports from the Soviet Union were
being handled by Arcos. Its successful establishment was followed by a host
of mixed and Soviet-owned companies in the U.K., predominantly for the
sale of Russian raw materials. When these mixed companies, with foreign
partners, were no longer needed, they were dropped.
THE RUSSO-BRITISH GRAIN EXPORT COMPANYExports of Russian grain began again in 1922 and gained new impetus
in 1923. Russia had been the world's largest exporter of grain in tsarist times,
and the Soviets naturally wanted to regain 'their' share of the market. One of
the first agreements in the grain trade was completed in October 1923 between
Centrosoyuz, Arcos, and Khlebexport on the one hand and a group of English
companies on the other (the Cooperative Wholesale Society; Shipton,
Anderson, Laurence and Company; and Furness Withy). As a result, the
Russo-British Grain Export Company was formed. The English and the
Soviets were represented equally on the board. The company had the support
of British banks who provided from the outset a line of credit amounting to
£1 million sterling at any one time to cover Russian grain at seaboard, in
port, or afloat.
The willingness of leading banks and commerical institutions to finance
trade operations in the U.S.S.R. on ordinary commercial terms, even whenthe question of expropriation was still far from negotiation, contributed
greatly to the success of these early efforts; without such financial aid they
" Commercial Year Book of the Soviet Union, X925, p. 250." Ibid.
272 Western Technology and Soviet Economic Development, 1917-1930
•would never have been realized. The proceeds of these grain sales were used
to purchase manufactured goods in the U.K.1S
Another Type II mixed company was formed in December 1923 between
the Commissariat of Foreign Trade and Dava-Britopol (the Danzig-Warsaw
British-Polish Company) called Ruspoltorg. This company had the prime
objective of exporting timber, bristles, horsehair, and medical herbs. To
assemble, store, and prepare these materials for export, it invested in the
Soviet Union, The capital of Ruspoltorg was one million rubles invested
equally by the founders, but it also had a line of credit amounting to four
million rubles from a group of Polish financiers, and some additional United
Kingdom backing.
Table 17-1 SPECIALIZED TRADING CONCESSIONS (TYPE II)
Lumber Petroleum Products Transport Dairy Products
Russangloles (U.K.)
Russhollangloles
(U.K.-Holland)
Russnorvegloles(U.K.-Norway)
Mologa-Waldindustrie(Germany)
Dvinoles Export, Ltd.
(U.K.)
Repola Wood, Ltd.
(Finland)
Deruwa (Germany)
Cotton and Silk
Persaneft (Persia) Russtransit
(Germany)Eggexport (Germany)
Russcapa (Canada) Union Cold Storage(U.K.)
Deruncft Deruluft Siberian Co. (Sibiko)
(Germany) (Germany) (Denmark)
Derutra G. H. Truss (U.K.)(Germany)
Ocean TravelBureau (U.S.A.)
Foodstuffs Animal Products Miscellaneous
Persholk (Persia)
Perskhlopok (Persia)
Kazuli (Greek)
Turksholk (Turkey)
Russot (45 percent KossaygerInternational)
Russperssakhar A. Roesch(Persia) (Germany)
Iva (Germany)Wostwag
(Germany)Koshsuryo
Persshold
Russian-Asiatic StockCo.
SharkSovmong
Derumetall
The company paid all Soviet taxes, imposts, and duties, and an additional
io percent of annual profits to the Soviet government. Exports amounted to
about $1 million per year. 14
GERMAN TRADING COMPANIES AND THE U.S.S.R.
In late 1021, Centrosoyuz concluded an agreement with a German trading
company, Nord-Ost, for exchange of Russian raw materials for German
" Manchester Guardian, October 18, 1023-
" Ekonomickeskaya Zhisn, No. 366, December 20, 1924.
Soviet Trading Companies and the Acquisition ofForeign Markets 273
manufactured goods. The company opened a line of credit of 500 million
marks, and goods were valued at prices prevailing on the Hamburg Exchangeat the time of the offer." In the following year, the Ukrainian Centrosoyuz
signed an agreement with the Dutch firm of Amexima of Amsterdam, underwhich all exports of the Ukrainian Centrosoyuz to Holland were handledthrough Amexima, which had the exclusive right to supply the former withimported goods.11
By far the largest of the German trading companies was Russgertorg
(Russische-Deutsche Handels A-G) a Type II concession, owned jointly bythe Soviets and the Otto Wolff interests, which represented a number of large
German firms, including Phoenix, Rheinische-Stahlwerke, Rheinmetal, andZippen and Bissener. It was signed in October 1922 and at a later date included
some United States firms who were unwilling to deal directly with the Soviet
Union. The company was jointly capitalized at 175 million marks. It function-
ed as an import-export company. The Soviets determined the nature of the
imports (mainly equipment for Soviet plants), and exports had to be coordina-
ted with Vneshtorg. Russgertorg also handled shipments made under the
military agreement with the Soviet Union.
Otto Wolff provided working capital of £750,000 plus a revolving credit of
£500,000 and a further credit equal to the income from half of the orders
placed with the company by the Soviets. The board of directors was selected
equally from each side. The company established itself very quickly—Hilgersuggests too quickly for its own good. In the second year of operation it washandling one-fifth of all Soviet imports—essentially machinery and industrial
equipment, In the first eight months of 1925, its business doubled to over
20 million rubles, of which three-quarters was financed by the seller and did
not require the company's working capital. 17
Although there are reports that Rusgertorg made a comeback, it probably
did not survive beyond 1925. It was 'extremely profitable' for both parties
while it lasted. It was, however, too successful from the Soviet viewpoint, andwithin a short time it so dominated Soviet domestic and foreign trade that
'the Government regarded its continued existence as a threat to its interests
and to its own governmental trade organizations.'18 The company did receive
Pravda (Petrograd), January 26, 1922.
U.S. Consulate in Hetsingfbrs, Report mo, May 15, 1922. (316-107-763.)U.S. State Dept. Decimal File, 3 16-1 31-89/102. See also Troyanovsky, op. cit.,
pp. 89S-7.
"The case of Russgertorg was a typical example of the way in which the SovietGovernment made use of its foreign partners as long as it derived benefits from suchcontracts, and dropped them as soon ss the conditions under which the contractswere concluded had changed.' (Hilger, op, cit.
t pp. 172-3.)
274 Western Technology and Soviet Economic Development, rgif-iyjo
a house-building concession in late 1928 but reportedly could not raise
sufficient capital for operations.1*
Derutra (Deutsche-Russische Lager und Transport m.b.H) had a virtual
monopoly of Soviet-German land transportation, but not ocean freight, be-
tween 1923 and 1926. It was a joint-stock Type II concession owned jointly
by the Hamburg-Amerika line and Vneshtorg. The concession had great
difficulties from the beginning, and Hilger suggests this was partly because
of the clumsy Soviet economic system and partly because of Soviet distrust.
An official reason for its dissolution was never given but the 'obvious reason
was that the Hamburg-Amerika Line . . . had a closer view of Soviet
economic conditions than Moscow desired.'20
Whereas Russgcrtorg was mainly involved with manufactured imports and
Derutra with transportation, the Type II concession Wostwag was organized
in 1923 for exporting raw materials—mainly furs, casings, bristles, caviar,
horsehair, potash, and oil. It established a network of workshops in the
U.S.S.R. for the 'working up' of bristles. Its functions were much morecircumscribed than those of Russgertorg, and it was limited to a precise list of
imports and exports. Furthermore, the trade in any one item in any one year
could not amount to less than 1.2 million gold rubles. Profit was divided equally
with Vneshtorg, and Soviet representatives sat on the board of directors.21
Whereas most trading concessions were of the mixed Type II variety,
Rueben and Bielefeld was a pure concession in which the Soviets held neither
management nor legal rights. It was concluded in 1923 to enable the firm
to buy fish products within the Soviet Union and export these products. TheU.S.S.R. collected 50 percent of the profits as a fee in lieu of taxes.M Another
Type II concession was Derumetall (Deutsche-Russische Metallverwertungs
G.m.b.H.), which joined the Berlin firm of N, Levy with Metallotorg to
export scrap metal. This must have been a sizable business, in the early years
Derumetall employed some 66 ships in removing scrap from the Soviet
Union to Germany.83 In addition there were several minor concessions, such
as Rusot, operating in the oilseed and oil cake field.21
RUSSO-AUSTRIAN TRADING COMPANY (RUSAVSTORG)The Russische-Oesterreichische Handels und Industrie A-G was a mixed
Type II concession linking Vneshtorg to a group of large Austrian firms. The
" U.S. Consulate in Riga, Report 5789, December 28, 1918.10 Hilger, op, «'(., pp. 177-8." Izveitia, No, 126, June 9, 19*3; and Ekonotnithttkaya Zhign, No. loa, May 10,
1923.** Izvestia, No. 108, May 17, 1923," U.S. State Dept. Decimal File, 340-5-566." Ekonomichttkaya Zhixn, No. 105, February 7, 1924.
Soviet Trading Companies and the Acquisition ofForeign Markets 275
capital stock was owned jointly by the Soviet government and the firms, butthe Austrian* actually purchased 75 percent of the stock and donated 25percent to the Soviet government; the other 25 percent of the Soviet sharewas paid out of accumulated profits and not subscribed at time of formation.In addition, the Austrian firms granted a credit of $1.6 million to the mixedcompany and a $1 million credit directly to the Soviet government. Theprofits were divided: 10 percent went to the Soviet government, and thebalance (up to 40 percent of the capital stock) was divided equally betweenthe Soviet government and the Austrian firms. Of the profits in excess of 40percent, 60 percent went to the Soviets and 40 percent to the Austrians. TheSoviets had the deciding vote and in effect controlled the company,"The second Austrian trading concession was Ratao (Russische-Oesterrei-
chische Handels A-G) a mixed joint-stock company one-half of whose capital
was held by two Austrian firms and the balance by the Soviet Union.
COMPAGNIA INDUSTRIALE COMMERCIO ESTERO (CICE)
This was a jointly owned Type II trading concession handling all importand export between Italy and the U.S.S.R. The company had its head officein Milan and a branch office in Moscow and other cities throughout Europe.It was capitalized at fourteen million lire and provided exclusive representa-tion for major Italian metalworking, leather, textile, and chemical companies,including the Fiat company, which had extensive sales and technical-assistanceagreements in both automobiles and aircraft.
The transport and handling of commodities and equipment from Italy tothe U.S.S.R. was handled by Societa Mista Italo-Russa di Commercio eTransporti, with agents and correspondents scattered throughout Europe andRussia.
By 1924 the Soviets found they had exhausted the possibilities of the mixedType II trading concession. Originally formed to attract capital and get intodirect contact with foreign suppliers and customers, the mixed companiesachieved both aims. The Soviets did not hide their reasons for dropping theforeign partners. An article in Ekonomtckeskaya Zhizn points out they wereno longer necessary: capital had been acquired and more could now beobtained by direct contact with the foreign suppliers; there was now noproblem in getting in touch with foreign businessmen. It was proposed thattrading companies should now become 'producing and trading companies'and that this would 'appeal to those who are really specialists in a given branchof the export industry and not merely middlemen and traders.' The example
" Izvestia, No. 148, July 5, 1913.
276' Western Technology and Soviet Economic Development, 1917-1930
of the German firm, Seyfurt, egg assemblers and producers in the Soviet
Union under concession, was given.28
What had the trading concessions achieved?
First, they had gained entry for the Soviet Union into foreign markets;
this was vital for the sale of Russian raw materials to generate foreign exchange
for imports of the technical means for economic development. This could not
have been achieved without foreign help. Once entry had been gained then
the sequence of orders could be maintained without too much skill.
Second, the use of trading companies with foreign partners effectively
maintained the trade monopoly in Soviet hands. In the early years the Soviets
did not appreciate the value of a trading monopoly, but once the value became
obvious they defended it with vehemence. The mixed joint-stock companies,
in which final control remained with the Soviets, in effect extended the trading
monopoly into areas where the foreign firms might join together to establish a
joint selling and buying company as a bargaining unit in the path of Vneshtorg.
The trading concession performed the supremely valuable function of main-taining the trade monopoly for the Soviets until such time as they could
establish their own overseas branches.
CREDIT FROM WESTERN FIRMS
It is generally believed that the Soviets received no credit during the early
phases of their development. This view has been propagated by the Soviets
themselves. Even well-informed writers have maintained this point. 5" Therewere, it is true, few government-to-government credits of any size. Therewere two sizable German loans and a few smaller direct loans from Austriaand Czechoslovakia. However, irrespective of non-recognition, numerousfirms, both American and foreign, were wilting either to advance credit to the
Soviet Union or to aid in the acquisition of funds through intermediaries. Bythe end of the decade the Soviets were no longer complaining about lack ofcredit; there was more than enough. They were, however, complaining aboutpayment of interest and the fact these firms did not treat the U.S.S.R. as a
'first-class customer,' In brief, Soviet development was in no way restricted,
by lack of finance capital, although the proof of existence of this financing
has had to be pieced together from numerous sources. 28
" Ekonomicheskaya Zkizn, No. 127, March 4, 1924.17 For example, see F. D. Holiman, 'Financing Soviet Economic Development,' in
M. Abramovitz (ed.), Capital Formation andEconomic Growth (Princeton: PrincetonUniversity Press, 1055), p. 55.
!S See Note A to chap. 7 for agricultural equipment credits.
Soviet Trading Companies and the Acquisition ofForeign Markets 277
Given the risks involved, the amount of financing forthcoming was sur-
prisingly large. The files of the United States War Trade Board indicate that
American import-export companies advanced credit for Soviet purchases on
the heels of the Revolution. One firm, Foreign Products Company, bought
$670,000 of clothing and condensed milk in March 1920, before trade restric-
tion with Bolshevik Russia were lifted, on the basis of an order and a small
deposit. The company then applied for export permits. This application was
rejected, but the company replied 'We insist upon passing of the above
mentioned applications.' Some products were getting through the blockade
through foreign firms operating under various names. One such was Niel3
Juul of Christiania (Os'o), Norway, which, according to the War Trade Board,
'used a number of cover names and in every way had a bad standing.'8*
Beginning in about 1921-2, credits began to flow from manufacturing
companies of some size and standing. Avery and Moline, and Sullivan
Machinery in the United :
?tates, the Clayton Company in England, Pamp in
Sweden, the Russian-Eui opean Company in Germany, and others in Finland
and Austria were advancing credit in 1922-3. From a position of 'no credit'
the United States moved to one of long-term loans and security issues within
a period of eight years, in a graduated erosion of executive interpretation andunder constant pressure from the Soviets and American financial and manu-facturing houses. The two major breaches of 'no-longterm loans' policy were
the American Locomotive Sales case of 1927 and the Harriman bond issue
case in 1928. By the end of the decade, more than 200 American firms were
advancing credit for up to three years at quite reasonable interest rates.80
Chase National Bank and the Equitable Trust Company were leaders in
the Soviet credit business. For some years this was handled on the basis of
platinum credits, as the State Department requested return of gold shipped
from the Soviet Union. In time this position also changed.31 Some financial
houses, notably Blair and Company, had a decidedly bad reputation within
the State Department.32
Credits to the Soviet Union were supposedly against State Departmentpolicy in the mid igzo's. The German Foreign Ministry Archives has reports
however of an International Harvester credit of $2.5 million for 18 months
United States Export Control regulations were not always treated seriously. Oneshipper, on being informed by Customs that a load of coal to Murmansk required apermit, said, 'Hang the license, I will ship to Norway and then re-ship to Mur-mansk.' Customs reported this was not uncommon. (Memorandum, Dickson toMerle-Smith, October 29, 1920, U.S. War Trade Board files.)
Bron, op. cit., p. 57.
U.S. State Dept. Decimal File, 316-136-471.
Memorandum, Division of Russian Affairs (316-137-404).
278 Western Technology and Soviet Economic Development, 1917-1930
Table 17-2 CREDITS ADVANCED TO THE SOVIET UNIONBY WESTERN FIRMS
CREDIT GRANTED
Country Year Thousands of Percent of Average term
Rubles Purchases in months
Germany1st 3 quarters 1925/6 19.176 72.6 6.7
1 st 3 quarters 19*4/5 16,748 56.0 5-8
Italy
1st 3 quarters 1925/6 n.987 99-7 7-7
1st 3 quarters 1924/S 651 55.6 6.2
England1st 3 quarters 1925/6 6,452 71.7 6.5
I st 3 quarters 1 9*4/5 9.83* 60.8 4.8
United States
1 st 3 quarters 1925/6 3.283 432 9'1st 3 quarters 1924/5 8,419 72.5 5.2
France1st 3 quarters 1925/6 3,598 91.9 15.7
1 st 3 quarters 1924/5 5 ! 9 3"-9 4'4
Sweden1st 3 quarters 1925/6 3,233 92-1 '2-1
1 st 3 quarters 1924/5 '.963 s7-° 9-6
Czechoslovakia
1st 3 quarters 1925/6 3,3 29 99-9 7-7
1st 3 quarters 1924/5 1,091 14.0 6.4
Source: U.S. State Dept. Decimal File 661. 1 115/466$
in 1925; this was overshadowed by the £30 million revolving credit advanced
by Chase National in 1926.M It has already been mentioned that American
banks involved themselves in making purchases on behalf of the Soviet Union.
Chase tried to buy Liberty engines.31 The Equitable Trust Company financed
a group of Bolivian tin producers to supply the tin requirements of the Soviet
Union.3S
Credits from Germany up to 1925 were limited by Germany's own economic
position, by the necessity to pay reparations, by some doubt as to Soviet intent
or ability to repay loans and to some extent by the necessity to avoid offending
the Allies by making advances to the U.S.S.R. The first credits were on a
barter basis. German reconstruction and operation of the Ukraine sugar
refineries was paid for in sugar. A similar arrangement was made with grain in
1923.39 This was followed by the October 12, 1925 short-term loan of 100
™ German Foreign Ministry Archives, Roll 3033, Frame H109454.M See chap. 15.
35 U.S. Consulate in La Paz, Bolivia, Report, December 26, 1929.
'• Hilger, op. cit., pp. 184-6.
Soviet Trading Companies and the Acquisition of Foreign Markets 279
million marks at 8.5 percent. The loan was hailed by Solnikov, the Finance
Minister, as the first breach in the financial blockade of the Soviet Union.
It was handled jointly by the Deutsche Bank and Reichs Kredit Gesellschaft
A-G and repayable in bills on New York." In 1926 came the 300 million
mark creditby German business firms, guaranteed by the German government
to the extent of 35 percent in case of default. The German lander accepted
another 25 percent guarantee. The loan was restricted to the purchase of
equipment for specific industries."
The International Union of Cooperatives was more skeptical. A joint
meeting with Centrosoyuz in Moscow in 1922 did not impress the European
delegates. It was suggested that the Moscow Co-operative Bank become a
member of the International Co-operative Bank, but when it was indicated
that the Moscow Bank would have to take up shares in proportion to its
claimed membership, it was suggested that the international cooperative
movement should meet Russia halfway because of her difficult economic
position. The foreign delegates were not impressed and put off the question
of credits to the international conference to be held at a later date in Milan.
The point never came up for further discussion." One surprising conclusion
from this study has been that organizations which are often thought to be
somewhat socialist in character, such as cooperative and trade unions, have
consistently refused to have anything to do with the Soviet Union in the matter
of credits, aid, trade, or technical assistance. The few exceptions, such as
Haywood and the Amalgamated Clothing Workers, make the overall coolness
of these movements very obvious. On the other hand, the industrial and
financial elements in all Western countries have, in the final analysis, provided
more assistance for the growth of the Soviet Union than any other group.
This provision is intriguing. The Soviets were heavy buyers of American cotton atthis time. One wonders where the U.S. dollars were being obtained. The Chasecredit may have some connection with repayment of the German loan.
Hilger, op. eit., pp. 184-6,
IS Report, April 1, 1922. (316-107-748.)
PART TWO
The Significance of Foreign
Concessions and
Technological Transfers
CHAPTER SEVENTEEN
The Foreign Firm and the
'Arm's Length Hypothesis'
The compilation of data which forms Part I of this study yielded several
supplementary hypotheses in addition to support for the basic hypothesis that
Soviet economic development for 19 17-1930 was essentially dependent onWestern technological aid.
The most significant supplementary hypothesis is termed the 'arm's-length
hypothesis.' In some concessions and agreements, the Western partner hadnoneconomic links to the Bolshevik cause; this particularly applies to early
concessions. In other words, from the Soviet viewpoint the invitation to
foreign capital was hedged, and initially limited to the more 'reliable' foreign
capitalists. One such arrangement sprang directly from the New York-based
Soviet Bureau of Martens before his deportation; but although the bureauhad been financed by numerous American businessmen, only a few of these
could be called ideological sympathizers.
The hypothesis is that some concession holders were in effect in arm's-
length relationship with the Soviet government, and their contribution to
the revolutionary cause was to lead the way and instill confidence in the Soviet
government in the hope that other businessmen would follow.
Quite clearly all agricultural communes, the American Industrial Colony(AIK) in the Kuzbas, the Russian-American Steel Works, the Russian-American Instrument Company, the Third International Clothing Factory,
and the Haywood concession (the Russian-American Industrial Corporation)were inspired by ideological fervor. The operators were either CommunistParty members expelled from or emigrating from the United States and other
Western countries or, as in the case of Haywood, sympathizers. That they
were sadly disillusioned does not alter the fact that the initial desire was to
support the Revolution; they clearly fall within the scope of the hypothesis.
Others require further explanation.
284 Western Technology and Soviet Economic Development 1917-1930
CHARLES HADDELL SMITH OF THE INTER-ALLIEDRAILWAY COMMISSION IN SIBERIA1
According to the State Department, Charles H. Smith, formerly United
States representative on the Siberian Railway Commission and member of
the Soviet Peasant International, was 'more or less' an agent of the Soviet
government.* The name threads thioughout the history of U.S.S.R.-United
States trade relations in the 1920s.
There is evidence that Smith used delaying tactics3 while he was American
member of the Inter-Allied Railway Commission of Siberia. On April 25,
1919 the State Department sent a telegram, 'Urgent for Smith . . . please
advise what materials Committee proposes to purchase in the United States.'*
At the same time, Stevens, the Chairman of the Technical Committee of the
Commission, was urgently requesting railroad materials: track motors, air
brakes and high-speed tool steel.6
On May 2, Smith replied as follows to the urgent State Department tele-
gram: 'Technical Board has not had time to study railway needs carefully."
Smith appended a list of items based on 'past information' and adds, 'Do not
think rails and track fastenings are needed just now. . . .
' 8
By June 18, no orders had been placed, although Stevens was still requesting
material urgently. By August 25, Smith had apparently been removed from
the sphere of ordering supplies and now it was found that 200,000 tons of
rails with 3A fastenings were needed.
The impression from the flow of telegrams from the Consul's office in
Vtadivostock to the State Department is that Stevens, President of the
Technical Committee, was competent, active, and anxious to start work, and
was requesting necessary supplies. These were delayed by inaction, and mis-
information. 7
After leaving the Railway Commission, Smith was active in the Far East,
generating support and winning influence for the Soviet Union, and trying
1 The U.S. State Dept. Archives refer to Charles Haddell, Charles H., Charles W„and Charles S. Smith, sometimes preceded by 'Colonel.' According to file notationsthey are one and the same. (See 316-130, 316-131, 316-136, and 316-176.)
8 U.S. State Dept. Decimal File, 316-131-1/2. Covering letter from Consul states,
'Mr. Smith is more or less an agent ofthe Soviet Government, and it is to his interest
to publish propaganda of this sort.'
1 'Delaying tactics' as a weapon were formulated by Representative Walter Judd.The Harry Dexter White case and the takeover of China by the Communists is
another example. See A. Kubek, foreword to Morgenthati Diary (China), Vol, J,
U.S. Senate Committee on the Judiciary, February 5, 1965.
* U.S. State Dept. Decimal File, 316-163-442.5 U.S. State Dept. Decimal File, 316-163-452, 316-162-454, and 316-162-456.* U.S. State Dept. Decimal File, 316-163-460.
' U.S. State Dept. Decimal File, 316-163-440/677.
The Foreign Firm and the 'Arm's Length Hypothesis' 285
to introduce foreign capital into the Far Eastern Republic. He was connectedwith the Far East Exploration Syndicate (also known as the Far Eastern
Prospecting Syndicate) and various proposed lumber and mining concessions.
Soviet reporting explained that Smith was 'a capitalist not under the control
of the United States Government'* and a 'breakaway.'*
Part of Smith's activity involved propaganda in favor of the Soviets. Smithpleaded, for example, with Senators Borah and Johnson, on their visit to
the Far East, to press for recognition of the U.S.S.R. and for the return ofthe Chinese Eastern Railway to Russian hands:
As always the Chinese Eastern Railway is a key to the solution. Thesooner the Russians would get it back, the better would it be for all
nations except Japan. . . . We who represent America here used tosay that this is a Russian railway and it must remain in Russian hands.10
Letters and memoranda in the U.S. State Department files testify to his
consistent pro-Soviet activities. Part of this activity was in concert with anothersuspected Soviet agent, Lively, who represented the United States Depart-ment of Agriculture in the Far East and China.11
Smith turns up later in the decade as vice-president of the American-Russian Chamber of Commerce (which had such well-known members asInternational Harvester, General Electric, Westinghouse, American Car andFoundry, and Guaranty Trust) and Moscow representative of the Chamber. 12
THE HAMMER FAMILY AND SOVIET OPERATIONS
Dr. Julius Hammer (born in Russia in 1874, died in the United States in
1948) was a member of the steering committee which founded the CommunistParty of the United States at the First National Left-Wing Conference of the
Socialist Party, held in New York City in June 1919. The Hammers werethen trading under license with the U.S.S.R. They continued to trade until
1923 when they operated, jointly with the Soviets, the Allied AmericanCorporation (Amerikanskoi Ob'edinennoi Kompanii), sharing both capital
and profits on a 50:50 basis.
The secretary of Allied American Corporation was Atmand Hammer;13
who also managed the Alapievsky asbestos concession,1* while Dr. Julius
• Ekonomcheskaya Zhizn, No. 24, October 28, 1923.' Far Eastern Times, November 22, 1923." U.S. State Dept. Decimal File, 316-131-1/2.11 U.S. State Dept. Decimal File, 316-130-1259, 316-176-409 and 316-176-838.11 See page 289.
" Armand Hammer, Quest of the Romanoff Treasure (New York; Payson 1036)Armand Hammer is currently President and Chairman of the Board of OccidentalPetroleum Corp., Los Angeles.
11 See chap. 6.
286 Western Technology and Soviet Economic Development, 1917-1930
Hammer, his father, was serving a term in Sing Sing for criminal abortion.
Later in the 1920s Armand Hammer operated the American Industrial Con-cession, for pencil factories in Moscow. 1S
Upon grant of the Alapievsky asbestos concession, the New York Timet
reported F.B.I, investigations had ascertained that Dr, Hammer 'had for
many years been prominently identified with the Socialist movement in this
country and became a Lenin-Trotsky propagandist.' Dr. Hammer had then
become associated with the Soviet Bureau in New York and acquired affluence.
When he was sentenced to Sing Sing it appears that Martens 'and other
representatives of the Soviet Government in this country had taken an active
part in the effort to prevent the physician from being sent to Sing Sing,'1*
Smith and Hammer therefore appear to fat! within the 'arm's-length
hypothesis.' There may be others. In 1920-1 the Robert Dollar companyhandled $7 million of the total $15 million worth of United States exports to
the U.S.S.R. The company's Moscow representative was Jonas Lied, whohad, according to the State Department, an 'interesting dossier* in the Depart-
ment of Justice (i.e., the F.B.I.) and intelligence in the State Department."
Like other Western traders with the Soviet Union, Dollar was reluctant to
say very much except to blast the 'radical element in the country (which)
should not be allowed to block trade.' 18
One of the partners in Bryner and Company, operators of the Tetiukhe
metals concession in the FarEast, 'was suspected of espionage for the Soviets.' 19
J. Finger and Professor Johnson of the Joint Distribution Committee (Agro-
Joint) gave glowing reports of the 'new Russia.'40
Although the German ex-Chancellor Wirth, operator of the Mologa conces-
sion, has been described by some writers as a 'Communist sympathizer,* there
is no evidence, and Hilger is probably correct in denying the charge.*1
In brief, there is supporting evidence for the 'arm's-length hypothesis.' 2*
" See chap. 13.
11 New York Times, November 4, 1921, p. i, col. 2; November 6, 1921, p. 23, col. 3;November 7, 1921, p. to, col. z; and November 24, 1921, p, 12, col. 4.
17 U.S. State Dept. Decimal File, 316-109-1375,
" Memoirs of Robert Dollar (San Francisco, 1925), III, p. 34. Out of a three-volumeMemoirs, Dollar devotes only one and a half rather general pages to his Russiantrade activities.
*' U.S. State Dept. Decimal File, 316-136-1254.
" U.S. State Dept, Decimal File, 316-108-652.
" Hilger, op. tit.
" According to documents at U.S. State Dept. Decimal File, 316-139-28/9, therewere also 'leaks' from the State Dept. to Moscow. Coleman suggested his reportsbe kept under close control and limited distribution, as the contents were findingtheir way to his opposite number in Riga and he feared for the security of Americancouriers.
The Foreign i-.rm and the 'Arm's Length Hypothesis' 287
Companies such as Westintfiouse and International Harvester, who operatedtheir prewar plants for mkc years, do not fall within the 'arm's-lengthhypothesis.' Westinghouse, International Harvester, Singer, and otherAmerican companies are still awaiting settlement for expropriation of theirplants. Swedish General Electric, the Swedish Separator Company (manufac-turers of dairy equipment) and SKF all domiciled in Sweden, had conces-sions, but there is no evidence that they fall within the scope of the hypothesis.In fact the unfavorable treatment of these companies when compared to thosefirms that do fall within the scope of the hypothesis confirms rather than deniesthe hypothesis.
Swedish General Electric, Swedish Separator, and SKF made consider-able profits from their concessions but were blocked from transferring theseprofits out of the U.S.S.R.» Although profit figures for concessions are hardto find, it appears that Hammer and Eitingon-Schild were the only conces-sionaires to make substantial profits and export them. Amtorg reports thatthe 22 principal concessions made 6.5 million rubles profit in 1926-7 and12 million in 1927-8, but nowhere indicates how much of this profit wastransferred out of the U.S.S.R. 2*
As Paul Scheffer put the case, 'Concessions in Russia are a sort of sport forrich people who can afford to pay dearly for their experience. . .
.'»
AMERICAN ORGANIZATIONS FOR PROMOTION OF TRADEWITH THE U.S.S.R.
American organizations with the objective of promoting Soviet-Americantrade were formed on the heels of the Revolution, unlike those of Britain andFrance, where organizations to gain recompense for expropriated capital werestronger and more vocal than those designed to promote trade.
Prerevolutionary foreign investment had been heavily concentrated underFrench (33 percent) and British (23 percent) control. About 20 percent wasGerman, but only 5 percent came from the -United States. Consequently therewas comparatively less ex-shareholder pressure in the United States againsttrading with the Soviet regime.26
The American pressure organizations were linked directly and indirectlyto the U.S.S.R. and numerous American firms.
The American Commercial Association to Promote Trade with Russiawas founded in 1919 by a group of American manufacturers, including the
" U.S. State Dept. Decimal File, 316-131-661.
"£T,
t0rB' "£ KIVl I79
-SISF alone made 2 - 8 mill'°» rubles in iojS and reoortedthat exports of these proceeds were being blocked.
9 reported
" Berliner Tageblatt, January n, 1919." U.S. State Dept. Decimal File. 3,6-107-1323.
288 Western Technology and Soviet Economic Development, IQ17-1930
LeHigh Machine Company, Bebroff Foreign Trading Company, New Hide
Manufacturing Company, Fairbanks Company, Morris Company of Chicago,
and perhaps 100 other firms and some well-known representatives of the
financial world. The first tasks of the association were to get the licensing
requirements enforced by the War Trade Board removed and to press for
removal of restrictions on financial transactions with the U.S.S.R. The asso-
ciation, according to claims of its president, Emerson P. Jennings, succeeded
in both objectives. Other objectives included a writ of mandamus to release
ships held in United States ports with goods for the U.S.S.R.*'
Probably the most important of its actions (although certainty not its most
highly publicized) was the financing of Ludwig C. A. K. Martens's Soviet
Bureau in New York. Jennings states that this was the work of a group of
American businessmen anxious to trade with Russia, rather than a plot financed
by 'Soviet gold,' as ran the current hue and cry.M
Not only did the association finance the Soviet Bureau but it also maintained
communications. The chairman of the Resolutions Committee was Martens's
attorney.29 Congressman James P. Mulvihiil, who represented the New Hide
Company in the association, was in contact with Heller, of the Commercial
Department of the Soviet Bureau. 30 In brief, the association, comprised of
American businessmen, was also intimately connected with the operation of
the Soviet Bureau.
The attachment was the result of political naivete rather than ideological
obeisance to the cause of the Revolution. In the fall of 1921, Emerson P.
Jennings spent a few months in the U.S.S.R. to drum up trade for members
of the association. As soon as he reached Reval, Estonia, on his way back to
the United States, he commenced one of the bluntest condemnations of the
Soviet Union on record. While in Revai, Jennings wrote a six-page bitter
denunciation of the U.S.S.R., complaining of the complete and utterunwor-
thiness and untrustworthiness of the Bolsheviks.'Pikers,' 'fakers,' and 'babies,*
are some of the epithets used. Nevertheless, he concludes by making a plea
" American Commercial Association to Promote Trade with Russia, Bulletin,
February 19*0.
" Emerson Jennings, Report to the Association (American Commercial Association to
Promote Trade with Russia, 1921). The Soviet Bureau had both trade and propa-
ganda functions. For example, see A. A. Heller, The Industrial Revival in Soviet
Russia (New York: T. Seltzer, 192a!. Heller was commercial attache to Martens
and the Soviet Bureau, and liaison with the U.S.S.R. He was arrested and deported
in May 1921 to Riga, Latvia, for these activities and became the Vesenkha represent-
ative in the United States. The book was an attempt to disguise the pitiful state of
Russian industry at that time. [Memorandum, Poole to the Secretary of State
(316-120-633).]" American Commercial Association, Bulletin, February 1920.
" L. I. Strakhovsky, American Opinion about Russia 1917-1920 (Toronto: University
of Toronto Press 196-1), p. 8s, fn. 9.
The Foreign Firm and thel
Arm*t Length Hypothesis' 289
for the United States government to advance credits to the Soviet Union for
the benefit of American manufacturers.31
THE AMERICAN-RUSSIAN CHAMBER OF COMMERCE"The American-Russian Chamber of Commerce was comprised of a group
of major United States manufacturers and financial institutions interested in
trading with Russia, and was a factor in the pressure for recognition of the
Soviet Union and resumption of full trade with credits. In a letter to the
Secretary of State (February 27, 1922), the chamber pressed for a policy
statement 'announcing under what conditions you would be glad to cooperate
with all nations in relation to the economic development of Russia,' and
utilizing the alternative of German political domination as a pressure point.8*
The president of the chamber was Reeve Schley, a vice president of the
Chase National Bank, which was in the forefront of financing United States
trade with the U.S.S.R. and reluctant to follow State Department policy.3*
In 1926 the chamber decided, in view of its failure to persuade the State
Department to send a commission or a representative to Russia, to send its
own representative to 'open an office in Moscow and generally obtain informa-
tion which will be of assistance to its members.'36 The representative was
Charles Haddell Smith, previously described by the State Department as
being in the employ of the Soviets and a member of the Soviet Peasant
International,
In 1928 'Colonel' Smith was appointed vice-president of the Chamber and
toured the United States speaking in favor of increased trade with the
U.S.S.R. This brought forth protests from organizations and individuals who
viewed trade with the Soviet Union in a rather different light. Matthew Woll,
for example, vice-president of the American Federation of Labor and president
of the National Civic Federation, sent an open letter to the American-Russian
Chamber of Commerce complaining of its activities and particularly called
upon it to use its influence to stop Soviet propaganda and subversive activities
31 Report to the Association, Emerson Jennings, August 31, 1921.
" The board of directors of the chamber represented many companies associated withRussian development : Deere & Co. , Worthington Pump, Russian Singer, Mercantile
Trust, International Fur Exchange, International Harvester, Lucey Manufacturing,American Locomotive, International General Electric, Guaranty Trust, 'Westing-
house Air Brake Co., and American Car and Foundry. (3 16-107-451.) The chamberwas founded in 1 91 6 to 'foster trade, encourage and generally promote the economic,commercial and industrial relations between the United State* of America andRussia.' A Moscow office was established in 19*7. By 1931 its publications werereflecting many of the propaganda shibboleths of Soviet regime.
" Letter from American-Russian Chamber of Commerce to U.S. State Dept.,February 37, 19a*, (U.S. State Dept. Decimal File, 316-107-451.)
31 U.S. State Dept. Decimal File, 316-100-1424.3S U.S. State Dept. Ddcimal File, 316-107-451.
290 Western Technology and Soviet Economic Development, 1917-1930
in the United States, Perhaps unfortunately, Matthew Woll suggested that
the presence of Smith in Moscow as representative of the Chamber 'furnished
additional grounds for the belief that the Bolsheviks would heed any requests
or demands made by your body.'3* If such a request had been made by the
Chamber (it was not), its handling by Smith would have been a most interest-
ing episode,
AMERICAN BANKS AND SOVIET SECURITIES
& number of American banks were partners in a Soviet attempt to float a
bond issue on the American market. The Chase National at first refused to
break off the relationship, using its past banking services for the U.S.S.R. as
the reason.
On January 19, 1928, the State Bank of the U.S.S.R. placed an advertise-
ment in the New York Times to the effect that the bank had guaranteed the
principal and interest of a 9-percent Soviet railway loan and that coupons
might be presented for payment at the Chase National Bank, the Amalgamated
Bank of Chicago, and the Bank of Italy in San Francisco. The advertisement
also contained the address of the State Bank in Moscow where 'further infor-
mation* could be obtained.
Two weeks before the advertisement, a $30 million railway bond issue
had been authorized in Moscow.The certificates permitted payment of interest
and principal to the holder in dollars, thus in effect converting the bond issue
to a dollar loan—flatly prohibited by the State Department. The issue was to
be sold by mail in the United States, and it was estimated that at the time of
the advertisement about $100,000 of such bonds had been sold, mostly to one
of the fur concession holders; in other words bona fide sales were insignificant.
The coupon advertisement was justifiably interpreted as an offer for sale of
Soviet bonds, and this interpretation was made plain to the associated banking
houses in letters from the State Department."
Among other things, Chase National was called an 'international fence'38
acting to compromise American foreign policy, It was said that they were'a disgrace to America. . . . They will go to any lengths for a few dollars
profit.'"
" U.S. State Dept. Decimal File, 3 16-1 10-268.
" The documents are in U.S. State Dept. Decimal File, 316-110-250. Letters fromcorporations and other interested parties in the files suggest that the State Dept.was by no means alone in its interpretation of the action of the State Bank andChase National. See the three-page telegram at 316-1 10-259/61, from New YorkLife Insurance Co.
s* By the National Civic Federation (representatives from business, labor unions andthe public). (U.S. State Dept. Decimal File, 316-iic—266.)
" By the Allied Patriotic Societies (U.S. State Dept. Decimal File, 31 6-1 10-284).The letters from private citizens were even more specific.
The Foreign Firm and the 'Arm't Length Hypothesit' 391
The Bank of Italy announced immediately that it would have nothing
further to do with the loan and specifically that it would not honor the bond
coupons. Other banks (the Chicago Amalgamated and Chase) were more
reluctant. The Chase made a step-by-step withdrawal. One reply (February 5)
stated that it wanted to conform to government policy but would continue to
pay the coupons. The second step of the retreat came after the State Depart-
ment bluntly pointed out that the payment of coupons would facilitate Soviet
financing and was against government policy. The third letter from Chase
indicated they had advised the U.S.S.R. State Bank 'that until further advice
of any change in policy by the Department of State we must decline to makepayment of any such coupons.'10
There is no doubt that stepped up purchases of American equipment and
technical assistance motivated this attempt with the aid of American banking
companies to break United States policy. The contracts with Dupont, Ford,
Kahn, McCormick, and many others were being signed, and dollars were
required for payments. The denial of the railway bond issue was followed by a
substantial increase in Soviet gold deposits in the United States.41
The amount of pressure placed by American firms individually and through
their associations on cabinet officials is very difficult to gauge. SamuelGompers,President of the AFL, thought it was sufficient in 1923 to make a strong
attack on Mr. Hearst, former Secretary Fall of the Interior Department
(of Teapot Dome notoriety), the Sinclair and Bamsdall organizations, Senator
King, and Senator Ladd, together with 'international bankers, oil magnates
and concession hunters' all or whom he accused of placing pressure on the
cabinet for trade with Russia.*2
When the desk level in ihe Division of East European Affairs suggested
that it would be 'unwise to hi'.ate' an investigation of Harriman's negotiations
with unofficial representative of the Soviet Union, one can only infer that
pressures above the desk level were at work.41 It was widely felt that General
Electric brought political pressure to bear in 1928 for permission concerning
its credit agreement with the U.S.S.R. for supply of electrical equipment."
The American Locomotive case was decided at the presidential level, and the
files certainly suggest interest by parties outside the executive branch.
American big business was almost unbelievably naive politically concerning
the Soviet Union. Standard Oil of New Jersey, for example, negotiated oil
" Letter from Chase National to U.S. State Dept. (Decimal File, 316-1 10-341.)41 With the collapse of the bond scheme, a shipment of S6 million in gold was made
from the U.S.S.R. to the Chase National and the Equitable Trust Company.(U.S. State Dept. Decimal File, 316-110-337.)
" New York Timet, November 23, 1923." See chap. 6.
" U.S. State Dept. Decimal File, 316-131.
29a Western Technology and Soviet Economic Development, iqzj-iygo
development simultaneously with the Soviets and the White Russians."Many major American firms, including Standard Oil of New York, BethlehemSteel, Armour and Company, and the Pennsylvania Railroad, were representedby Ivy Lee, a well-known public relations agent. For much of the 1920s,Standard of New York was battling with Royal-Dutch Shell over Soviet oil;
in 1926-7 Standard of New York decided to build a kerosene refinery for theSoviets at Batum and lease it back to supply Standard Near and Far Eastmarkets. Ivy Lee had the job of selling the switch to the American public,
and after a quick trip wrote of the U.S.S.R. as follows:
I had heard that the Russian Government, the Communist Party and theCommunist International are all combined in a conspiracy against man-kind, particularly capitalist mankind. I was anxious to find out, by first
hand examination, just what is the nature of that conspiracy and howit is functioning.48
Quite predictably, 180 pages later, Lee concludes that the communistproblem is merely psychological. By this time he is talking about 'Russians'
(not Communists) and concludes 'they are all right.' He suggests the UnitedStates should not engage in propaganda ; makes a plea for peaceful coexistence
;
and suggests the United States would find it sound policy to recognize theU.S.S.R. and advance credits.47
Walter Duranty felt, probably with accuracy, that the Rockefeller oil
interests were playing both ends of the game. Standard Oil of New Jerseywanted compensation for its expropriated petroleum holdings, white StandardOil of New York was buying oil in Russia and had therefore leased back the
Standard-built kerosene refinery in 1927 at Batum. Duranty quotes Izvestia:
While the Standard Oil of New Jersey is talking about moral reasons forrefusing to do business with the Soviet Union, Ivy Lee who handles theRockefeller propaganda recently visited the Soviet Union and carried onan unobtrusive press campaign for the improvement of trade relationsbetween the United States and the U.S.S.R.48
EUROPEAN TRADE WITH THE SOVIET UNIONPromotion of trade with the U.S.S.R. became the objective of Parliamentary
delegations in a number of countries. In the United Kingdom, members of
" U.S. State Dept. Decimal File, 316-137-83/1*6, 131-343/5.41 Ivy Lee, U.S.S.R.; A World Enigma (London: Benn, 1927), p. 9.41
Ibid. William White acted as interpreter for Ivy Lee in his interviews with RykovSokolmkov, Karahan, Radek, Hinchuk and Piatakov. 'Mr. White stated that theinterviews which he attended were extremely inane in character but that because ofhis Standard Oil connections Mr. Lee seemed to stand A- 1 with the Soviet author-ities.' [U.S. Embassy in Berlin, Report 5099, November 26, 1929 (U.S. State Dept.Decimal File, 316-110-1391).]
*• New York Times, July 25, 1927, p. 33, cols, i, a (quoting Izvestia of July 34, 1927).
The Foreign Firm and the 'Arm's Length Hypothesis' 293
Parliament sympathetic to the 'new Russia* made the usual trips and publishedglowing reports on their return suggesting that the Soviets had demonstratedtheir 'fair-minded treatment of concessionaires,' and that this removed theneed for 'excessive caution' on the part of foreigners as the 'new Russia' couldbe relied upon to give a 'square deal to foreign capital.'"
On the other hand, associations devoted to emigre1
and prerevolutionaryowner interests in France were almost equally injudicious in other respects.Emigrd businessmen resident in Paris had several vocal associations, includingthe Association Financier, Industrielle et Commercial Russe, which issuedmemoranda and booklets concerning the economic position of Soviet Russia.For these groups nothing could possibly be right nor could any developmentpossibly take place without the return of former owners."
In Germany, attempts to trade with the U.S.S.R, began in 1919, and inlate 1920 German firms interested in resuming trade with the Soviet Unionformed a Research Association for the Resumption of All Trade with the East(Studiengesellschaft fur dieAufnahme des gesamten Handels mit dem Osten).61
After the Treaty of Rapallo, which contained economic and commercialprotocols, relations with the U.S.S.R. developed very rapidly. An all-Germansection of the Ail-Union Chamber of Commerce of the U.S.S.R. was formed,and this became the focal point for industrialists and German Embassy officials
in discussion concerning the reconstruction of both Germany and the U.S.S.R.—until, as Hilger points out, the Embassy was blocked off by the Sovietsfrom either assisting or communicating with German companies working inthe U.S.S.R. The Soviets also utilized the meetings of the German sectionto move German industrialists along 'more desirable' lines, to reassure themthat imports of German machinery would not lead to dumping, and to complainthat the Americans 'do not guard manufacturing secrets so jealously.'*2
However, the U.S.S.R. found continued resistance by some German com-panies, especially I. G. Farben, to the transfer of technology.On the other hand, Dr. Otto Deutsch, managing director of A.E.G.
(Allgemeine Elektrizitats Gesellschaft), was most interested in resumptionof trade with the U.S.S.R. and became a member of the German commissionestablished to further this objective. His basic arguments were that theU.S.S.R. was a vast market which could not be ignored and that, as the
" £nSI
'J-
Rus9ia" Parliamentary Committee, Poaibtlitiei of Brituh-Rmsim TradefmZr«:
,
s9
ffl
>-
P\P-™e booklet "P*d *« the Lena and HarrimarTc^Us, onl
" Hilger, op. cit., p. 29.
" Ekonamicheskaya Zhizn, No. 225, September 29, 1029.
294 Western Technology and Soviet Economic Development, 1917-1930
U.S.S.R. could not pay cash, concessions and credits would be necessary." M
In 1928 during the 'Shakta Affair' when A.E.G. engineers were arrested and
charged with sabotage, the initial A.E.G. reaction was to pull all their
engineers out of the U.S.S.R. After a few days contemplation of the number
of outstanding contracts and the losses involved, the German General Electric
(A.E.G.) company decided to continue working.84
CONCLUSIONS
In brief, the 'arm's-length hypothesis' that some firms had noneconomic
links to the Soviet Union, applies to early concessions, and these were of great
importance; they were 'pour encourager les autrcs.'
The pressure in the United States for trade with the U.S.S.R. began while
the Revolution was still in progress and was fostered by several active
organizations.
Later in the decade, industry pressure was placed on the executive branch
of the government to facilitate credit in trade with the U.S.S.R. and modify the
State Department position of denying credits to the U.S.S.R. The latter
policy was gradually eroded under pressures originating above and outside
the 'desk level' of the Department.
On the other hand, German trade with the U.S.S.R. was placed on a formal
basis by the government in 1921-2, and the Soviets had no need to use
intermediaries to break down an unfavorable economic policy.
Mittelungen der Handelskammern, February 1922.
'European industrial progress cannot be restored without the active participation
of the 160,000,000 purchasers in Russia. I do not defend the Russian regime as
we know it, but to wait until it is transformed into something more pleasing is anidle fancy. Despite what it is today, the situation in Russia does not prevent the
operation of commerce on condition that one takes reasonable precautions.' (Otto
Deutsch, Nezo York Times, November 13, 1927, p. 4, col. 3.)
'The directors of the AEG in the first flush of indignation had initially declared
that they would immediately withdraw all their engineers who were in Russia
mounting machinery, regardless of existing contracts. A few days later, however,they seem to have regretted their impetuosity; they withdrew their initial declara-
tion, obviously afraid of the losses that would occur because of the non-fulfillment
of contractual agreements.' (Hilger, op. fit., p. 221.)
CHAPTER EIGHTEEN
Organized and Disorganized Governments:The State Department and the Acquisition
of Technology
WESTERN GOVERNMENT ASSESSMENTOF SOVIET INTENTIONS
Although the transfer of technology involved all those Western countrieswith any degree of industrialization, it essentially included Germany in the1920s, and then the United States, as German credits ran out and the U.S.State Department increasingly relaxed its stand against credits to the U.S.S.R.Another factor was the gradual acceptance of American techniques in prefer-ence to European. It was the mass production technique of Ford rather thanthe more conservative production horizon of European producers that at
first mystified and ultimately attracted the Soviets.
At the beginning of the decade, Western governments were in substantialunity concerning the aims of the Soviet Union. Certainly the State Depart-ment in 1923 had accurate ideas of Soviet intent in so far as trade and creditwere concerned. A very clear statement formed part of a 'confidential' report,no doubt for circulation to friendly governments, by New Scotland Yard inLondon. The relevant part of the report reads:
Concessions are offered, and foreign capital is sought with the object ofrestoring the collapsed industries of Russia in the interest of the Com-munist State. It is calculated that in some years foreign industry andenterprise will have revived these industries which then, more firmlyestablished and efficient than ever before, will revert to the State, whichwill then be able, fortified by experience and the method of foreign par-ticipants to resume the Marxist experiment. Nor need one believe thatany conditions subscribed to by the Soviet Government will be faithfullyobserved. The capitalist and the private owner have no inherent rights.Faith need not be kept with them. Cozened into the open by their capital-ist greed they will be overwhelmed when the great advance is resumed.1
296 Western Technology and Soviet Economic Development, igiy-igso
The State Department did not hesitate to subscribe to this analysis. Amemorandum from Evan E. Young, Chief of the Division of Eastern European
Affairs, to the Secretary of State comments:
I have read the report with care and attention, and while it contains no
new information, it is to me of especial interest and importance in that
the report agrees, in all respects and in every particular with our informa-
tion and our position,2
However, there does not appear to have been unanimity on the question
of Soviet trade, concessions, or technical assistance within the United States
Administration. Arguments for resumption of trade began while the Bolshevik
Revolution was still in progress. It was suggested by Mr. Edwin F. Gay at a
meeting of the War Trade Board, December 1918, that the policy of economic
isolation of the areas under Bolshevik control was not the best means of
bringing about a stable government:
... if the people in the Bolshevik sections of Russia were given the
opportunity to enjoy improved economic conditions, they would them-
selves bring about the establishment of a moderate and stable order.3
EROSION OF UNITED STATES POLICY ON SOVIETTRADE CREDITS
The basic policy of the State Department in the 1920s was that the United
States government would neither support nor intervene in individual or
business relations in trade with the Soviet Union. In other words, it was a
policy of noninterposition or 'hands off.' The individual or firm was entirely
on its own, anil could expect no diplomatic or consular help in the event of
trouble with the Soviet government.
Toward the end of 1920, there were world-wide rumors concerning a
gigantic billion-dollar concession alleged to have been obtained by a man
named Washington B. Vanderlip for the development of Siberia and Kam-
chatka. There is some possibility that Vanderlip represented himself to Lenin
as another Vanderlip, banker and friend of Senator (later President) Harding.
The syndicate behind Vanderlip contained a number of substantial Southern
California citizens: Harry Chandler (of the Los Angeles Times), E. L. Doheny,
Present Position and Policy of Soviet Russia, U.S. State Dept. Decimal File,
316-108-699.
U.S. State Dept. Decimal File, 316-108-697. There are numerous indications of
the State Dept. views in the files; this example was chosen because of its succinct-
ness, clarity, and agreement with the view of a major European government.
Minutes of the War Trade Board, V, 43-4, December 5, 1918. After Mr. Gay's
argument, the Board adopted a motion recommending to the Dept. of State that a
policy of economic isolation and blockade ' ... is one calculated to prolong the
control of the Bolshevik authorities . ..' (p. 7). This is the earliest statement of
the 'bridge-building' argument.
Organized and Disorganized Governments 297
the Union Oil Company, Merchants National Bank, Braun and Company,and other California firms and institutions. Vanderlip's negotiations, while
General Wrangel was still fighting in the South, were not well received by the
United States or the British governments. In the end, although the affair took
up 100 or so documents, now in the Archives, nothing was achieved, and the
concession faded into thin air.4
It can be argued, with substantial evidence from State Department files,
that the pressures in the 1 920s for expanded trade with the U.S.S.R. came frombusiness firms and promoters such as Vanderlip and Farquhar, as well as
from within the State Department itself.
The American Locomotive case of 1927 was one of the turning points in
erosion of United States policy. The American Locomotive Sales Corporation
inquired in October 1927 concerning sales of railroad material to the U.S.S.R.
on long-term (more than five years), credit. The company argument was that
it was extremely desirable 'to obtain foreign orders in view of the Depression'
;
that bankers and manufacturers had found that the Soviets lived up to their
short-term commitments, and that German sales were being financed anywayby American banks. Then could sales of United States equipment be financed
on a long-term basis by American banks, preferably by the sales of securities
to the American public?*
In the next month, two memoranda were written by R. F. Kelley, Chief of
the Division of Eastern European Affairs. These indicate that the State
Department had not previously objected to short-term credits incidental to
current commercial transactions, but also that only one such transaction hadever been presented to the Department for approval.4 The Department hadpreviously objected to bank credits and loans designed to finance the sale of
German manufactures to Russia. The memorandum then quotes the denial
to W. Averell Harriman in 1926 concerning a scheme to float a loan of 25 to
to 35 million dollars on the American market, the proceeds of which were to
be used to extend credit to German industrialists in order to sell goods to the
Soviet Union. It also mentions the New York Trust Company and the Far-
quhar denials.7
U. S. State Dept. Decimal File, 316-134-148. The State Dept. files connectVanderlip with Martens and the Soviet Bureau in New York.Letter from American Locomotive Sales Corp. to U.S. State Dept. October 17,1927 (316-124-0026).
Kelley Memorandum, October 28, 1027 (316-124-0031). This was in 1925 whenthe Chase National Bank had informed the State Dept. it was arranging a cottoncredit. The State Dept. did not object, as the arrangement was 'considered asincidental to ordinary current commercial intercourse.'
U.S. State Dept. Decimal File, 31 6-1 24-0031.
298 Western Technology and Soviet Economic Development, iQiy-ig^o
The memorandum makes the following very pertinent commentary:
. , , if the object of the Department's policy with regard to Russian
financing is to exercise pressure on the Soviet regime to the end that this
regime may eventually come to realize the necessity of abandoning its
interference in the domestic affairs oftheUnked States and of recognizing
the international obligations devolving upon it with respect to theindebtedness of Russia to the United States and its citizens, and with
respect to the property of American citizens in Russia,—if such is the
Department's aim the logic of the situation would seem to demand that
the Department view with disfavor all financial arrangements, whetherin the form of bond issues or long term bank credits and whether designedto facilitate American exports to Russia or to serve other purposes whichwould result in makingfinancial resources available to the Soviet Govern-ment.8
In brief, the Kelley argument was that any financial arrangement was going
to be of assistance.
The decision, made at the Presidential level after consultation with Mellon
and Hoover, was to allow American Locomotive to extend long-term credit to
the Soviet Union for the purchase of railroad equipment.'
The Soviets kept pressing foreign firms. They finally succeeded in breach-
ing the long-term loan situation in 1928-9 by holding Harriman and Companyand the State Department 'over a barrel.' Harriman had been forced out of
his manganese concession10 and the Soviets offered compensation in the form
of long-term bonds. Harriman accepted bonds at an interest rate of 6 percent.
This was gleefully hailed by the Soviets as the first American loan to the
U.S.S.R. 11
When the Harriman bonds were received by the Chase National Bank in
New York there was no mention on the face of the certificates of the fact that
they were for any specific purpose. Vice-President Schley informed the State
Department as follows:
I do not look upon the transaction in any way as an attempt to float anysecurities in this country, but as an obligation given in payment of a
single business transaction, and I trust that the Department will view it
in the same light. 12
' U.S. State Dept. Decimal File, 316-124-0032.' Marginal notation on letter to American Locomotive, U.S. State Dept. Decimal
File, 316-124-0027. It might be added that in August 1927 a rumored Dillon Reedloan of S30 million to develop the Solikamsk potash deposits and other projects
had been quashed by the U.S. State Dept., acting apparently on its own initiative.
11 Harriman says he left by agreement (see page 91). This explanation is not at all
consistent with the contemporaneous newspaper or archival material. He wasforced out by interference, by high costs, and generally by what Walter Durantycalled an 'utterly inept' agreement.
11 'This is actually the first American loan received by the Soviet . Government.'(Amtorg, op. cit., IV, No. 16-17, *9%-)
1J U.S. State Dept. Decimal File, 3 16-13 8-296/7.
Organized and Disorganized Governments 290
The subsequent State Department memorandum noted that the bondsreceived by Chase National totalled 84.45 million, whereas the Harrimaninvestment had only been $3.45 million. The memorandum comments:
It would appear therefore that Harriman and Company has advanced tothe boviet Government a sum of approximately $1,000,000. . . .»
The memorandum goes on to suggest that this was probably a quidpro quofor compensation for expropriation and that:
No useful purpose would be served by placing difficulties in the way ofriarnman and Company from recovering the money invested in theconcession. ...
The memorandum then argues that the additional %i million was not reallya loan but part of the original concession.The Riga Consul (Coleman) was lessvague and called the whole Harriman transaction a 'loan.' This statement,however, was given the classification {in the department) of 'confidential.'"
It is amply clear, in retrospect, that the Harriman 6-percent 20-year bondswere a long-term loan and effectively breached the last remnants of UnitedStates credit policy vis-a-vis the Soviet Union."
THE STATE DEPARTMENT AND PATENT PROTECTIONA Soviet decree of September 12, 1924 gave patent rights, under certain
conditions, to inventors for a period of fifteen years. Article 2 of the originaldecree stated that no invention would be considered novel if, prior to the dateof application, it had either in the U.S.S.R. or abroad been 'described fullyor with substantial particulars so openly as to be capable of being reproducedby experts.' This was subsequently amended to read 'described fully . . .
or applied.' (Italics are added.) In brief, if the invention had been describedor used abroad then protection would not be given under Soviet law.18
Irrespective of written law, which gave scant enough protection to foreigninventions, Bolshevik practice gave no protection whatsoever. Law and thejudiciary in Leninist political theory exist only to further the ends of the state.Consequently, true patent protection, in the sense that we understand it in
» U.S. State Dept. Decimal File, 316-138-299." U.S. State Dept. Decimal File, 316-138-289." } ^f11
,"?e "Timbered that previously the U.S. State Dept. had been unwillin* to
r-resent^ve^^^representatives of the Soviet Union in the United States. It is sensed, but withoutconclusive evidence, that the State Dept. could not become involved n as3 on
»kUi I a i1
*1 7 ?'veJ
the d"tonet impression that political pressures wellabove the desk level of the department were at work.
"U^winfSrp
81
???
1'' StBaI
' ^^ Vni<m Ytarb00k' W6
' (London: Allen and
300 Western Technology and Soviet Economic Development, 1917-1930
the West, could in no way be construed to exist, whatever the written content
of the decree. This was in fact the initial interpretation and conclusion of the
State Department.
The Columbia Graphophone Manufacturing Company was informed bythe State Department in 192 1 'that the Bolsheveki had nationalized all private
and industrial property in Russia and that it could therefore be inferred that
any individual rights—such as patent and trademark protection—could not
be secured during their regime.' 1* This was confirmed in 1922 upon a second
inquiry by Columbia. This interpretation is confirmed by history as there is
considerable evidence, even without the Archives, that the Soviets were
indeed sequestering patents and anything else of a technical nature in the
1920s—as they do even in the present day. 18 That this confiscatory policy was
widely known is suggested by the numerous letters of inquiry in the State
Department decimal file.19
In any event, caution was indicated by a quite separate chain of happenings.
In 1 91 9 the United States had deported, as an undesirable alien, Ludwig K.Martens, organizer of the Soviet Bureau in New York and hardly a friend ofthe United States, although Martens had been assisted in the organization
and financing of the Soviet Bureau by a number of American companies.
On November iz, 1924, Martens was appointed by the Soviet of Labor andDefense as Chairman of the Committee on Inventions.20
In 1925 or thereabouts, there was a definite change in the administration of
American policy in relation to patents. Rather than the early doctrine of
noninterposition, a doctrine of positive encouragement of Soviet trade was
substituted, but partially clothed in the words of noninterposition. Wherecaution was indicated, active and positive suggestions were made in response
to inquiries for advice on patent and other matters. This change cannot be
traced to any specific Congressional action, and, there is no evidence to suggest
pressure from above the 'desk level' of the State Department. It predates by
a year or so the changes in credit and loan policies discussed above.
17 U.S. State Dept. Decimal File, 316-108-679/680." See the report of H. L. Roosevelt of RCA on negotiations with the U.S.S.R.
for a long-range radio transmitter: 'The Soviets desired . . . strangely enough,the right to use Radio Corporation patents for manufacturing purposes. The latter
request had somewhat amused Mr. Roosevelt as he found the Soviets brazenlycopying many foreign products.' [U.S. Consulate in Stockholm, Report 248,April 10, 1928 (U.S. State Dept. Decimal File, 316-108-791).] In October 1924,the Norton Company complained that the Ilytch works in Petrograd was marketinga grinding wheel under the name of NORTON. (316-108-815.)
" For examples see U.S. State Dept. Decimal File, 3 16-10B. Also, see Ford DelegationReport (1926).
s " Izvestia, No. 273, November 29, 1924. That patents -were not protected, even for
Russians, is confirmed by V. N. Ipatieff, op. cit., p. 287, who noted that his patent
for 'Ipatite,' a gas-absorbent material, was immediately turned over to the Revolu-tionary War Council.
Organized and Disorganised Governments 301
An internal indicator of the change is treatment of an official Soviet notice
on patents issued ic June 1925. The United States Commissioner of Patents
and the United Statts Department ofCommerce questioned the State Depart-ment as to whether the notice on patents received by them should be publishedin the Official Gazette at all 'in view of the fact that this circular is publishedby or in the interest <;£ the Soviet Government.' The State reply to thememorandum was simply to enclose a draft of the phraseology to be employedin publishing the notii », without directly answering, either way, the substanceof the questions.*1
In advising American firms, after about 1926, on the patent position in theU.S.S.R., a policy of active encouragement was followed. In September 1927the State Department received a letter from Gleason, McLanahan, Merritt,
and Ingraham, attorneys at law, which indicated that a client had an 'invention
of international importance' which he wanted to protect. Further, they saidthat 'we fear that if the process should become public in Russia and noprotection can be secured, much of the value of our invention may be lost.'
To be consistent with previous replies and the policy of noninterposition,the State Department reply should have indicated that it could not intervene,that there were neither diplomatic nor trade relations between the twocountries and therefore that no protection could be given to a United Statescitizen.
The actual State Department reply gives the address of the Leningradpatent office (Ulitza Herzena, 24, Leningrad) and then adds:
In as much as there are no official representatives of the Soviet regimein the United States, documents required for the registration of patentsin Russia should be certified in the United States by the diplomaticofficers of a nation with which the Soviet regime has diplomatic relations.Among such countries are Germany, France, Italy and Poland. . . »
Instructions then follow on the procedures to be followed with the Sovietauthorities after the necessary signatures have been obtained. There is nothingin the reply that would suggest for all practical purposes a patent could notbe protected, as we know it in the West, under Soviet law and practice.
The Automatic Damper Company sent a scribbled, almost illegible, half-page note requesting general information on Soviet patent laws, obviouslywith the intent of patenting one of its devices.
The Automatic Damper Company must have been pleasantly surprisedwith the detailed two-page reply which indicated precisely how to go aboutpatenting a device and gave two addresses in the U.S.S.R. One of these was
11 U.S. State Dept. Decimal File, 316-108-^83/6." U.S.State Dept. Decimal File, 316-108-691/3. Also see Lacey and Lacey inquiry,
October 6, 1927 (316-129-687/8).Jin
30a Western Technology and Soviet Economic Development, 1917-1930
the Inventions Bureau (TsBRIZ), under the control of Martens Committee.81
One wonders if the State Department realized that all stoking appliances,
including dampers, were being produced by the Richard Kablitz concession
and that this was an area where purely Russian technology was nonexistent.
Work in this field was dependent on Western equipment. For example, the
report of Professor L. K. Ramzin at the meeting of the 1930 World Power
Conference in Tokyo covers his experiments utilizing Moscow brown coals,
which have a moisture content of 32 percent. Ramzin reported that predrying
had been a failure but that these coals could be completely burnt with the
aid of hot-air draught as follows: 'The fuel was ground in a high speed
Atritor mill of Messrs Alfred Herbert and the aerated dust was blown into
two long flame burners located in the upper arch of the furnaces, the flames
then being diverted downwards and forming a U. The bottom of the furnace
was fitted with a Babcock and Wilcox water screen. . ..' S4
In short, a policy was instituted of suggesting how to overcome absence of
diplomatic relations and ensuring that patentable techniques would, in fact,
be transferred to the U.S.S.R. without protection. If the reader is dubious,
then indication of the treatment afforded another type of patent inquiry—
those from individuals in trouble and requesting help—will complete the
picture.
On November 21, 1928, Rector, Hibben, Davis, and Macauley, attorneys
in Chicago, requested advice on behalf of the Burroughs Adding Machine
Company, which
has been requested to furnish ... all sorts of publications describing
the products of the Burroughs firm ... we hesitate to advise the Bur-
roughs Company to furnish the information without a little more accurate
advice as to what is really going to be done with the information after it is
obtained.25
The firm had been told by the Soviets that the information would be used
in considering applications for patents, but obviously both Burroughs and
Rector were skeptical. The State Department reply was that it had no infor-
mation, and no means of ascertaining the purpose for which such publications
might be desired and 'cannot advise you in the matter.' 28
An appeal for help from B. Singer, a specialist in trademark and patent law
who represented clients with patents registered in the U.S.S.R., was rejected.
A number of patent applications had been filed through a Soviet citizen,
Blau, who had been arrested by the GPU and whose office had been closed.
" U.S. State Dept. Decimal File, 31 6-108-694/6.
M Engineering, CXXX (February 7, 1930), 184-
" U.S. State Dcpt. Decimal File, 316-108-690.
» Ibid.
Organised and Disorganized Governments 303
Singer requested the good offices of the State Department to facilitate the
transfer the Blau's office records to a new associate, one Feldman. The reply
curtly indicated regret but inability to help Singer in any way 'as this Govern-
ment has not recognized the regime now functioning in Russia.'1'
Thus, the State Department was willing to aid the transfer of patent
information, or tacitly encouraged Soviet acquisition of information (Bur-
roughs), but not willing to warn of possible confiscation, which was known to
the department, nor outline the Soviet record or philosophy. Formal state-
ments of noninterposition in trade relations were followed by advice or
suggestions running counter to the implementation of a doctrine of non-
interposition.28
The promotion of Soviet technical data acquisition by the State Department
is particularly curious in the light of the fact that knowledge of expropriation
was widely known in industrial and commercial circles, and one presumes
that State Department had access to the same knowledge.
For example, the 1926 Ford Delegation Report makes the following pertinent
comment After pointing out that the Soviet Union has a patent law, the report
adds:
This law does not seem in any way to hinder the reproduction in Russiaof foreign patented products. In the automotive line the Fordson tractor
is reproduced in Leningrad under the name of the 'Red Putilov' Tractor.The Italian Fiat i$ ton truck is reproduced in Moscow under the nameAMO and the Bosch spark plug is reproduced in Leningrad by theAvtopromtorg organization.2*
The U.S. Consul in Riga, among other U.S. representatives abroad,
pointed this out on a number of occasions. It is a reasonable presumption
that the State Department was encouraging transfer of technical information
knowing that the result would be expropriation without compensation or
permission. The reasons behind such a policy are beyond the confines of
this study.
U.S. State Dept. Decimal File, 316-108-763.
This raises the question of the extent to which the State Dept. is able or requiredto go in order to protect United States citizens. In another context, State Dept.letters suggest it was not aware of any dangers for engineers or firms entering theU.S.S.R., but usually added that it could not provide protection in the absence ofdiplomatic relations. The State Dept. was aware in May 1918 that Rykovhad orderedthree German engineers involved in the Shakhta affair to be shot. This had beenstricken from the official record of the Rykov speech. Yet the engineers may havebeen sentenced to death because Rykov was compromised by the Shakhta affair inthe eyes of Stalin. It appears to the writer that United States firm* are entitled toknowledge of the likelihood of this type of arbitrary action. The Baaghom and Mottcases are more recent examples.
Ford Delegation Report (1926), p. 38.
304 Western Technology and Soviet Economic Development, 1917-1930
THE MONOPSONISTIC POWER OF THE SOVIETTRADE ORGANIZATION
Foreign trade was a state monopoly under Vneshtorg from the beginning,and superb use was made of this monopoly in trade relations with the West,especially in playing one company, or country, off against another.
Little thought was given to this process of 'divide and conquer'; the Sovietsstumbled onto it in their pragmatic search for foreign assistance.
There is an interesting report, of uncertain origin (probably written in theGerman Foreign Ministry in 1928), which provides a clear discussion of this
problem and the pressures and counterpressures that a united front ofWestern firms and countries would encounter. 30 In essence the report pro-posed concerted action by Western powers in relation to trade with the SovietUnion. The writer expresses surprise that a decade of trade with the monopolytrade organization of the Soviet Union had elapsed before discussion of'organized counteraction.'31 Brief examination of the factors making fordiversified rather than a unified approach leads the writer to the conclusionthat the
Soviet government in a masterly fashion took advantage of these con-flicts of interest between the powers, for a consolidation of the monopolyof foreign trade. ...
The author argued that little good could come of carefully worded articles
and treaties with the U.S.S.R. Monopoly of foreign trade was one of the'commanding heights' of the Soviet economy; and attempt to create aninternational 'united front' had been met with claims of an 'anti-Soviet front.'In 1938 only the German and French chemical industries were able to agreewith the Soviets on prices and joint deliveries. Finally, the author suggestedthat such international cooperation would have to take the initial form ofuniform credit and delivery conditions.
Hilger suggests that neither the Germans nor the Soviets were aware in
1 92 1-2 of the potential power of a trade monopoly, and that the opportunityof meeting the Soviet trade monopoly with a central German business organi-
zation was missed 'because of the tenacity with which the predominantlySocialist Government of Germany stuck to the principles of free enterprise.'
Later Germany formed the Russian Committee of the German Economy(Russland Ausschuss der Deutschen Wirtschaft) to provide advice and orien-tation on German-U.S.S.R. business. Hilger comments that, once the Soviets
10 U.S. Consulate in Riga, Report 5156, March 26, 1928 {316-109-579).31 The author of the report would be even more surprised to learn that in 1966,
almost fifty years after the Bolshevik Revolution, there was still no unified counter-action although NATO, SEATO, and CENTO are the military and politicalequivalents of such counteraction.
Organized and Disorganized Government* 305
realized the importance of the trade monopoly, they were suspicious of anyattempt to impede its value and began to block embassy aides from aiding
German firms in negotiations, especially with the Main Concessions Com-mittee.**
The Soviet Union, supposedly the opponent of monopoly, has in fact beenthe greatest recipient of monopsonistic profits in the history of industrialized
society. Neither has it been slow or backward in recognizing and protecting
the value of this monopoly.
THE BOLSHEVIK ATTITUDE TOWARD THE FOREIGN FIRMBolshevik unity was split by Lenin's concession policy. The rank and file
Bolshevik questioned the wisdom of, and the necessity for, the return of thecapitalist—after all, had not the Revolution just ejected him? The Party haddifficulty in convincing its ranks that foreign capitalists were a necessary evil.
In particular, the OGPU, charged with the purity of the Revolution, wasdubious concerning foreign elements. Whenever it had the chance, as in the
Shakhta affair, the OGPU exercised punitive measures with great zeal.
The pleas to the Party faithful to accept foreign capitalists and engineers give
the clue that Communist intent was to absorb capital, skills, and technology,
and then, 'when the lemon was sucked dry,' to discard it. There are numerousspeeches and articles in contemporary Soviet literature which suggest both
the captive nature of the concession and, on the other hand, the necessity for
the concession in the reconstruction and development of a socialist society.8*
The Urquhardt negotiations in 1922, although a failure, are interesting in
this regard. Urquhardt was president of Russo-Asiatic Consolidated, Ltd.,
which had held very iarge concessions in tsarist Russia. Negotiations with
Urquhardt for operation of his former properties, then lying idle, would haveled the way for other entrepreneurs. Although Urquhardt was well aware of
Bolshevik strategy, he ; nade a concession agreement with Krassin in 1921 ; the
latter then went to Moscow for ratification by Lenin and Trotsky. Before this
could be obtained, word leaked out and the hue and cry within the Party
forced Lenin to scuttle the agreement, using British activities in the MiddleEast as a pretext,
" Hilger, op. cit, pp. 166--S7. This may have colored Hilger's interpretation of thevalue of concessions. If .!; embassy was denied data, they could have assumed aminute impact of the cor.crssion.
" See Volume II. Not all the clumsiness was on the part of Western businessmen.In a conversation between Mr, Arlt of the KSnigsberg Chamber of Commerceand a 'high Soviet official tfvs latter, in reply to a question concerning the safety ofGerman investments in Russia, said, 'Until Germany goes through a successfulWorld Revolution they will be Bafe. If Germany goes Bolshevist, however, it willmake little difference to German industrialists whether their possessions areexpropriated in their own country or in Russia.' (316-133-140.)
306 Western Technology and Soviet Economic Devehpmen t, igry-ipjo
Some early Bolsheviks were clearly aware of the necessity for foreignhelp. Krassin had formerly been managing director of Siemens Schukert inPetrograd, He then became a revolutionary, and in 1920-1, as Soviet TradeRepresentative in London, he argued that
Russia . . . cannot without assistance organize her trade. She cannotbring together her resources in a productive manner and she must relyupon capital, the experience and initiative of foreign capitalists. . . «
An article by Arsky in Krasnya Gazela in 1921 in effect clarifies this policy:'The question of concessions has been under discussion for the last half yearbut so far it has mostly been in the air . . . nothing has been done.'36 Thewriter then describes the proposed Northern Telegraph concession, argues its
advantages as a generator of foreign exchange, and the alternative of not beingable to use the line at all. 'As a result of this treaty,' he writes, 'we shall get arepaired telegraph line and hundreds of millions of francs in gold to carry ontrade with abroad.'
Arsky then discusses a Kuban sulphates concession in the same glowingterms
:'Of course the concessionaires will profit hugely but let them do so for
it will bring wealth to us and we must pay for that.' Finally, considering aBaku forest concession, Arsky argues that, although the concessionaire will
profit, 'as Lenin foretold we shall have to pay a high price to foreigners fortheir help, science and energy in enterprise.' He then adds that in any eventthere are not enough skilled Soviet workmen, nor could the Soviets feed them,nor will they be able to in the near future—'We must seize the moment.' TheSoviets, he says, are well able to take care of their own interests, certainly inthe matter of concessions: 'They will demand from those who get them themaximum of profit for the country and its re-establishment.'
The Party line had to be sold to the rank and file, and it would appear thatthe closer the explanation got to the factory and farm level the less circum-scribed was the description of the fate awaiting the foreign specialist. Forexample, Ipatieff quotes a collective farm chairman, Kopylov, in a speech at
Tikhonova Pustyn in Kaluga Province:
Of course we need bourgeois specialists for a short time. As soon asParty members learn what these specialists know we'll get rid of thespecialists fast enough. Right now we must treat and feed them far betterthan ourselves; but their time will come, just as it did for the rest of thebourgeoisie.'19
" New York Times, June 12, 1921, p. 2, col. 3.
" Krasnya Caseta, September 3, 1921. Arsky was, at least, able to look after his owninterests
;by 1024 he had acquired 30,000 shares in Moskust, a joint-stock company
in Moscoiv. r '
" Ipatieff, op. cit., p. 486.
Organized and Disorganised Governments 307
The opposition to foreigners at the plant level became overt on numerousoccasions, but it is not always clear whether this was due to ideological dislike,
counter-revolutionary activity or just plain antipathy for those who came along
to improve plant discipline. It is reasonably likely that the majority of Party
members were kept in line by Party discipline, whatever they thought. It is
more likely that the opposition came from non-Party bureaucrats and perhaps
counter-revolutionary segments, except where discord was created on direct
orders of the Party, as part of a campaign to eject a specific concessionaire.
It is entirely conceivable, on the other hand, that the OGPU overtly attempt-
ed to scuttle the introduction of foreign elements in the name of protecting
the Revolution. Douillet, Belgian consul in Russia, relates how the OGPUarrested and jailed an Austrian aircraft worker at the Junkers plant and a
diesel specialist in Shelkotrust. They were retained without charges and then
expelled."
The Americans at the Kuzbas project (the American Industrial Corporation)
had clearly ideological opposition. The newcomers were classified as either
Communists or sympathizers and neither was particularly popular amongKuzbas coal miners. McDonald, an engineer with a technical-assistance
agreement with Uralmed, met opposition from Soviet engineers, whom he
accused of 'seriously interfering with the progress of important work.'88
This is rather similar to the opposition met by Ruykeyser at Uralasbest—fear
that technical inadequacy might meet dismissal, or worse.
By the end of the decade opposition had become serious, especially at the
Dniepr generating plant, the largest in the world, being built by Americanand German engineers. There was a rather natural conflict between the twoforeign groups, but there was also an 'unfriendly attitude' on the part of the
local workers serious enough to warrant the attention of V. V. Kuibyshev in a
speech to the Supreme Soviet:
But, have these foreign and alien hands not been brought by the proletar-ian state, and is the transplantation of foreign technique not necessaryin order to enable socialist technique . . . first to overtake and then excelEuropean capitalist technique? Without resorting to foreign assistance ona still greater scale, this is impossible. The application of foreign techniqueis one of the keys to hasten the tempo of our development. . . . Such
'* Douillet, op. cit., pp. 74, 76.
" Pravda{Moscovi),No. 239, October 1 6, 1929. Similar cases were reported in a specialsupplement on foreign specialists in Ekonomtchetkaya Zhizn, No. 443, October so,1929; for example, German engineer Scheibil at the Karl Liebknect work* ofUgostal was 'abused and persecuted.
1 Another engineer (Mashik) at the Tomskyplant of Ugostal was subjected to an 'inquisition' and put to work in a shop(316-130-927/8). Two German engineers at the Komintem pottery works underreconstruction were isolated because one of them (the technical director) gave'strong orders' to the workers (Ekonomicketkaya Zhizn, No, 245, October 23, 1929).
308 Western Technology and Soviet Economic Development, igT^~ig$o
assistance is absolutely necessary in the ferrous and non-ferrous coal andchemical industries.39
Kuibyshev then went on to add that in the non-ferrous, ferrous, and pottery
industries there were cases of hostility to foreign workers.
Hilger, economic attache1
at the German Embassy in Moscow, confirms that
resistance to concessions and foreign aid came from the lower levels of the
Communist Party, the bureaucracy, and the OGPU.10 He also suggests that
the Soviet leaders intended duplicity in the long run and that 'it was never
more than a retreat,' although he quite correctly points out that it is difficult
to distinguish cause from effect. In retrospect, it seems that the Soviets werenever honest in their concessions operations. Hilger avoids, or perhaps
momentarily forgets, the numerous references in Lenin's speeches in whichconcessions were held to be temporary and destined for expropriation whentheir purposes had been achieved.
BOLSHEVIK LEADERS AND THE JOINT-STOCK COMPANIESSome of the Bolshevik leaders found this a suitable time to improve their
personal fortunes and a number had holdings in private enterprises and mixedcompanies.
Moskust, one of the most important stock companies, controlled a cloth
mill and paper, shoe, tarpaulin, glass, and leather factories. Trotsky owned80,000 chcrvontsi shares, while Arsky held 30,000, Sklyansky 45,000, and
Muralov, the Commander of the Moscow Military District, an unknownnumber. It was believed other leaders participated through relatives.
Zinoviev was interested in Arcos and the Leningrad Tobacco Trust andowned 45 percent of the Volkhovstroi stock company. Chicherin held an
interest in the mixed company Turksholk (Turkish silk), and Dzerzhinsky was
chairman and held 75,000 chervontsi shares in the Coal Mines Exploitation
Joint-Stock Company.11
Krasnatchokov, former Chicago lawyer and President of the Far East
Republic (later absorbed into the Soviet Union), rose to become a member of
Vesenkha and President of Prombank. While in the latter position he made a
. . . rather liberal contract with a Russo-American concern, with whichhe was personally connected, and from which his wife drew monthlyassignments payable in the United States.42
" Speech at Sixth Plenary Session of the Supreme Soviet, October 1929." Hilger, op. cit., pp. 170-1.
" U.S. State Dept. enclosure to U.S. Consulate in Riga, Report 2394, September 24,I0
.
24 (3 I 6-I29-I229). Ipatieff comments acidly on the behavior of Party function-aries attached to the Berlin Trade Delegation and Purchasing Commission.(Op. cit., pp. 408-9.)
42Scheffer, op. cit., p. 129.
Organized and Disorganized Governments 309
Although these cases may prove shocking to the ideological purist whoconsiders the Marxist to be above personal gain, they are insignificant,considering the opportunities available in a complete dictatorship, and arecertainly less than the personal empires built up by Stalin and his henchmenin more recent times.
CHAPTER NINETEEN
The Necessity for Foreign Technology
and the Process of Acquisition
THE IMPACT OF REVOLUTION ON THEINDUSTRIAL STRUCTURE
It has been assumed almost axiomatically that World War I, the revolutions,
the Intervention, and the Civil War created the catastrophic collapse of the
industrial and agricultural sectors in 1922. J
The basic cause for the collapse was the economic illiteracy of an ideology
which had neglected to think out its economic counterpart and drove a viable
growing economy into a shambles. The campaign to innate the ruble to zero
value, the demobilization of industry, the policy of 'free' transport, utilities,
and other services, the massive decline in labor productivity, coupled with
doubled and tripled wages, were contra-dcvclopmental in effect.
In the first year of the war, the Russian economy had changeover problems
which persisted until industry was on a war production basis; then growth,
as measured in terms of output and employment, resumed. The industrializa-
tion mobilization campaign of 191 6 created significant growth. New industrial
centers were created at Nizhni-Novgorod, Rybinsk, and Samara, in addition
to the expansion of existing centers in Moscow, Petrograd, and earlierindustrial
areas. One result was an increase in the demand for raw materials, and the
1 The following is a typical statement: 'Russian industry, agriculture and transporta-
tion declined greatly during the war, and by 1917 were in a condition approaching
collapse. The civil war served to accelerate economic disruption, with the result
that by 1920-1 industry was practically at a standstill while agriculture was fast
approaching the condition which, coupled with a severe drought,, precipitated the
famine of 1921-22.' [American-Russian Chamber of Commerce, Economic Hand-
book of the Soviet Union (New York, 193 1), p. 7-]
This myth has been compounded by using 1913 as a comparative statistical base.
In fact, some industries had a 1916 output twice that of 1913. Some chemical
products (such as benzene, toluene, and zylene) not produced at alt in 1913 were
produced in quantity between 1914 and 1917. (Ipatieff, op. at., p. 210.)
The Necessity for Foreign Technology and the Process of Acquisition 3 1
1
excess of imports over exports in 1916 was due to this upsurge in activity.
Between January z, igz6 andJanuary 1, 1917, industrial employment increased
by 8.9 percent}
The greatest increase was in metallurgy and food products. Agricultural
implement works were turned over to munitions production : 'there was hardly
a repair shop of any size connected with the textile, confectionery, macaroni
or other industry which was not assigned to the manufacture of grenades,
mines, field kitchens, or other war materials.' 3 In a few industries output
declined due to enemy action: most sugar refineries were in occupied territory,
cement production declined because of a shortage of hoop iron for barrels,
and there was a shortage of spare parts. But on balance, in the year before the
revolutions, Russia had resumed her economic growth, new industries were
being created, and industrial employment was greater than ever.
The first revolution was a shock to this expanding structure. The Ministry
of Trade and Commerce undertook a survey which covered five months
between the Kerensky Revolution and the Bolshevik Revolution. Between
March and July, 568 industrial enterprises were closed down and 104,000
employees lost their employment. Almost one-third of the enterprises closed
were engaged in manufacture of food products, with textiles and metalworking
next in importance. The most important single reason for failure was lack of
fuel. Less than 10 percent closed for lack of orders, a condition which could
well have come about as a secondary result of lack of fuel and supplies else-
where. Excessive demands of workmen and financial difficulties comprised a
very small proportion of failures, considering that this was a period of revolu-
tionary unrest. Most firms closed were small and unable to plan against these
factors. In spite of this decline in industrial activity, concentrated in smaller
enterprises, all the larger and important plants were operating at the time of
the Revolution ; nor is there a reported case in the two major industrial centers
of Moscow and Petrograd of a large plant looted, burned or destroyed by the
Revolution itself.4
The largest single blow to the structure of industry was a decree issued by
the Soviet Commissariats of Labor and War on December ax, 1917, calling
a halt to all military production and dictating a return to peacetime activities
* Report of the Ministry of Trade and Commerce, August 19:7 (316-111-1015).
* U.S. Military Intelligence Report, Russian Industries, October 1018 (3l6-l*o-35)'
4 There are reports in the U.S. State Dept. Archives which mention 'looting' of
plants, but this always refers to removing specific items of value (especially brass
or copper) and not to physical destruction of the plant or its equipment. Overt
destruction was limited to institutional symbols of the tzars. For examples, see
the Soltoloff collection of photographs at the Hoover Institution, Stanford Univer-
sity. In toao Petrograd was deserted but intact. For instance, in photograph No. 34,
taken on the Neva, large plant buildings and smoke stacks are still standing, but
idle.
312 Western Technology and Soviet Economic Development, 19x7-1930
within one month. Industry at this time was working at full capacity on war
material and had no alternate plans for consumer products. This simple order
had a major adverse effect. One month was, of course, an insufficient time to
change course completely. Not one factory was able to start peacetime
production by January zi, 1918, and most were forced to close. The only
exceptions were those plants where workers insisted on fulfilling military
contracts as an alternative to closure. The resultant chaos compounded an
earlier problem. The Bolshevik Revolution had caused most foreign and
numerous Russian skilled workers to flee abroad along with the managers and
engineers. The 'instant demobilization* decree hastened the exit of skills,
but workers now went to the villages.* In brief, this single decree robbed the
industrial structure of that skill and technical component which had not
already left. This structure, which, despite supply difficulties, had been
operating reasonably well, and in 19 16 was giving definite signs of renewed
growth, was now placed on the road to collapse.
The period of War Communism was entered with neither technical nor
administrative apparatus, under a government of Soviets which had neither
plans nor solutions for the chaos. Feeble attempts at planning civilian produc-
tion were made by some worker's committees; this led to duplication of effort,
and, in any event, neither financial nor technical problems were overcome.
The Soviets then tried centralization, but lack of knowledge and information
fed to conflicts among makeshift managements. Concurrently came a major
decline in productivity as the discipline of a market system collapsed. Inflation
led to payment in kind rather than in depreciated paper money. Lack of goods
was instrumental in creating self-supply organizations in factories, until the
principal task of the factory became feeding and clothing its own workers.
Resultant losses were made up by state subsidy, thus furthering the inflation.
The decline in production of one of the largest Moscow machine shops,
which was producing iron and steel castings and forgings, was reported to
the State Department. In January 1917, just before the Revolution, the index
of production was at a base of 100. The difficulties of the inter-revolutionary
period arc reflected by a decline in the index to 76. By the following January,
just after the 'instant demobilization decree' the index had fallen to 45. By
August 1 91 8, reflecting attempts at stabilization, the index had fallen only
to 37. Data from other sources supports this chain of events. On the Northern
Railways there was 0.67 a laborer per verst of line in 1913 and 5.8 laborers in
1919; on the Moscow-Kursk line there were 6.48 laborers per verst in 1913
and 18.9 in 1919. Railroad work was a preferred occupation as it gave access
to food supplies in the villages.
* Rykov, in a speech before the Third Congress of the People's Council in January
1920, indicated that go percent of skilled workers left the factories at this time.
The Necessityfor Foreign Technology and the Process of Acquisition 313
The labor supply position in the large plants confirms that skilled workers
left in droves while the plants themselves were intact. In 1920 about 30 factories
in Petrograd were attempting to work for the Red Navy. The major problem
was lack of skills. The Baltic plant employed 3,500 and required another 5,800.
The Franco-Russian factory had no workers and was looking for 1,500. Thefamous Putilovets had only 350 workers and wanted another 1,100. ThePetrograd Metal Works employed 150 and was looking for another 1,000.
In the 30 or so works listed, a total of 11,000 people were employed and a total
of 22,000 additional workers were required. This counters the myth that the
plants lacked equipment. The plants lacked skilled labor and management,
both of which had been dispersed by the Bolshevik Revolution,8
In brief, as we already know, there was a complete collapse under WarCommunism. This collapse had little to do with the Civil War. It was created
at the very beginning of the period of War Communism by dispersion of
skills, absurd decrees, and the removal of disciplinary market forces.
THE TROUGH OF THE INDUSTRIAL DECLINE
In many sectors, production declined to almost zero by 1922. Cast iron
reached less than 1 percent, cotton yarn 1.5 percent, rubber galoshes about
.33 percent, and gold about .5 percent of 1913 production. Food products,
especially if processed, fell to less than 5 percent. Per capita production of
sugar was less than 1.5 pounds per year, and vegetable oils about .33 pound
per year.7 The accepted explanations for these abysmal declines were the
war, revolutions, the Civil War, and the blockade. Actually production
increased during the war, and the revolutions did little physical damage to
production facilities. General Wrangel still occupied the Crimea, but this wasa small part of the vast Russian geography. The allied blockade had been
raised in 192 1 and foreign products began to flow in larger quantities. Thedecline continued after these 'reasons' had ceased to exist. The real cause
must be sought elsewhere than in political and military factors; the decline
was essentially caused by economic factors.
THE NEW ECONOMIC POLICY (NEP)
NEP was introduced to offset the economic problems caused by Bolshevik
economic policy. Nonpayment for work removed incentives. Nationalization,
when there was no managerial talent available, was suicidal, NEP was a
temporary move to utilize the knowledge and experience of the capitalist class
* U.S. State Dept. Decimal File, 316-1 11-1 157.* See Report by Vesenkha Co IX Congress of Soviets.
3 14 Western Technology and Soviet Economic Development, 1017-7030
to revive the economy, 'This is not an attempt to restore the capitalist class
but to adapt it to our constructive work.' 8 The major impact of NEP was in
the spheres of trading and small manufacturing, although it has also been seen
as an accommodation to the reluctant peasant. Implementation turned nation-
alized enterprises back to private operations. This was somewhat more
widespread than Dobb has suggested.* Pravda {January 18, 1922) gives a
summary by region of the number of enterprises remaining under government
supply and finance after the initial NEP reorganization.
Table 19-1 REGIONAL DISTRIBUTION OF ENTERPRISESUNDER GOVERNMENT AND PRIVATE CONTROL
AFTER NEP REORGANIZATION, 1922
The Necessityfor Foreign Technology and the Process of Acquisition 315
enterprises listed in table 19-1 are those in which supply of inputs and finance
is from private sources. It implies nothing about ownership, an academic
question since 1917; the important point is the mechanism for overcoming
deficient working capital and input supplies. It was to private mechanisms
that the Soviet government turned. Any statement concerning ownership
under a Soviet regime is illusionary.
Bogdanov, President of the Supreme Economic Council, stated emphatically
on December 20, 192s , that large scale industries could only be re-established
by foreign investment and technology (i.e. by private mechanisms):
The investment cf foreign capital is absolutely unavoidable as the equip-ment of whole briinches of our industry depends upon foreign countries
in so far as they were never created and supported in Russia by our ownresources. It will he necessary to support these branches of industry in
the future for a certain time by means of foreign capital and the introduc-
tion of foreign technical equipment. 10
This capital and technology, added Bogdanov, were to be admitted in a
controlled manner, 'only . . . where it is absolutely necessary, i.e., exploita-
tion of new mines.' NE" iiad succeeded, he said, in moving industry from
'almost a standstill' in June 1921 to 'very, very slight' progress; but then he
added a warning against optimism and suggested the road would be a long
one, although the turn had been made. The policy of decentralization—i.e.,
the improvement in supply conditions by private trade and small plant leasing
—was the factor behind the reversal in fortunes. NEP had a limited objec-
tive—to arrest the decline. In this it had been successful. The next step was
reconstruction—restarting the numerous large and intact tsarist plants.
CONCENTRATION, TRUSTIFICATION, AND CONTRACTIONAfter several alternate solutions had been tried, it was decided to shrink the
economic system by abandoning those plants making losses, grouping the
remaining plants into trusts, and turning smaller or inoperable units back to
domestic or foreign private enterprise.
The trust was designed with the introduction of foreign technical assistance
in mind. The declared intent was to make the trust the vehicle for the transfer
of foreign capital and technology demanded by Bogdanov. Examination of
those trust agreements that are available confirms this objective. As reported
in Krasnya Gazeta,11 the twin aims of all trusts were, to obtain capital and
assistance from abroad, and to retain chief controlling interest in the hands of
the Soviets. One presumes the order of ranking was not accidental. The original
10 U.S. State Dept. Decimal File, 316-107-661." January a6, 1921.
3 1 6 Western Technology and Soviet Economic Development, 1917-1930
intent was to encourage foreign participation only in those trusts with dormantplants which were backward technically or which required large injections ofcapital. In practice most of the trusts looked to the West for assistance.
In the electrical and petroleum industries, technological progress was impos-sible without Western assistance, and so even comparatively well-run trustslooked westward. Trustification moved along fairly rapidly in late 1921 and1922 but did little to improve the economic situation. Industrial productioncontinued to slide downhill at an alarming rate and reached a nadir in thesummer of 1922. The adopted countermeasure was the 'contraction ofindustry' policy. In order to reduce government subsidies, it was proposed byVesenkha to select and close down nonessential industries. 12 A curious ration-alization of this policy, made by Jacub, was that a socialist economy hasalternate booms and slumps: 'each autumn and winter industry expands,while each spring it undergoes a crisis and contracts.' This statement was madein mid-summer and ignored the almost continual decline, winter and summer,which had been underway since the Bolshevik Revolution. Jacub viewed acondition of permanent crisis and suggested that a temporary contractionwas not enough:
There are only two ways to go—either pronounce our industry incurable. . . and close it down entirely
, or else adopt measures, not for its contrac-tion, but to keep it operating at capacity. 1*
In other words, technical and managerial rationality had to be injected into
the shambles that the Bolsheviks had created from a buoyant, viable economy.The end was reached in August 1922. There is a report in the State Depart-
ment files concerning a meeting at Vesenkha. Bogdanov made the openingaddress and again stated in the bluntest language the condition of industry
organization: it had 'reached its limit.' The situation was 'appalling anddesperate.' The only hope, concluded Bogdanov, was the receipt of foreign
capital and a good harvest coupled with complete denationalization."
THE TREATY OF RAPALLO (APRIL 16, 1922)
After the collapse of the Genoa Conference, the Soviets and the Germanssigned the Treaty of Rapallo, under which they reciprocally renounced all warclaims and war losses. Germany also agreed to renounce compensation for
nationalized property in the U.S.S.R., 'provided that the Soviet Government
This policy is described in the four issues of Ehoitomichesltaya Zhixn, Nos. 122-1;,for June 2, 4, 7, arid 8, 1922. Engineer Jacub read the report before a joint meetingof Gosplan and Vesenkha. Judged from the amount of space devoted to it, thereport seems to have had top-level backing, but a lowly engineer was selected topresent the total admission of failure.
Bkonomicheskaya Zhixn, No. 125, June 8, 1922.
IS Report (316-107-727).
12
The Necessity for Foreign Technology and the Process of Acquisition 3 1
7
does not satisfy similar claims of other States.' Diplomatic and consular rela-
tions were resumed, the most favored nation principles applied mutually, and
the basis was established for resumption of trade and economic relations.
Rapallo laid the groundwork for economic recovery. American and Europeanrelief stemmed the famine. The military agreement of 1922 was the basis for
development of the Red Army, Navy and Air Force, and gave the Soviets
the benefit ofGerman military technology.The long-deniedeconomic protocols
were the basis for German economic and technical assistance and gave the
Soviets sufficient breathing space to consolidate the Revolution and turn to
other members of the Western world for capital and technical assistance. It
was a successful three-pronged policy and brought the U.S.S.R. back fromthe brink of complete collapse.
The State Department files contain a remarkable summary of the Com-munist viewpoint of Rapallo from a top-level source:
... we are still the gainers from the Rapallo Treaty. Apart from thefact that our industry will be restored with the aid of German experts,
our political activity and importance through the medium of Germanywill increase very rapidly. . . . German specialists therefore are beingwelcomed into all branches of our State life and have already penetratedinto the most important branches of industry. General Bauer's Commis-sion now in Moscow is acquainting itself with all sides of our militarylife and advising the General Staff, although its official mission is merelyto improve our aviation.16
With Rapallo and its important military and economic protocols came the
International Barnsdall agreement which effectively halted the decline of Bakuand modernized production techniques to make this area the most important
earner of foreign exchange. By late 1922 the Soviets felt sufficiently strong
to recommence exports of grain and renationalize privately operated organiza-
tions. The turning point of Soviet fortunes was mid- 1922 and was dependent
on the Rapallo protocols.
RECONSTRUCTION AND THE SECOND BOLSHEVIKREVOLUTION
Reconstruction as used in this era does not mean physical reconstruction
but the revival of dormant enterprises. The revival of trade and distribution,
together with the limited contribution of NEP, enabled a return to the
Bolshevik road. The growth of small retail and manufacturing enterprises
14 U.S. State Dept. Decimal File, 340-7-10. The document originated with IS andwas marked 'Confidential For Secretary and Under Secretary.' See Appendix Afor reliability of IS. The above extract comprises about one-third the total report,so that, on the basis of space, the impact of German assistance should be consideredas a prime objective of the Soviets.
3 18 Western Technology and Soviet Economic Development, igij-ig^o
was choked off in 1924 as reconstruction by German technicians placed the
Soviets into a stronger overall economic position. Over 300,000 private
enterprises were closed within a few months. 16 An article in EkonomicheskayaZhizn entitled 'Results of the struggle against private capital' summarizesthese major changes. Such a revolution would not have been dared unlessVesenkha felt confident about the possibilities of economic revival. In textiles,
44 percent were produced by private means in the first quarter of 1923-4and only 14 percent in the last quarter. In flax, the percentage declined from1 1 to 6 percent, and in woolens from 7 to 2 percent. The sugar trust hadearly German help and reported 27 percent in the first quarter and only
5 percent in the last. The salt syndicate, also with German aid, reported
a decline from 40 percent to 10 percent. Both the sugar and salt trusts benefited
from American machinery, for example, the Fulton Iron Works made exten-
sive shipments of sugar machinery in 1922-3."
The early Soviet economy was full of paradoxes, not the least of which wasthe source of the strength enabling the Second Bolshevik Revolution.
Destitute in 1922, they were back on their feet in 1924. As individual trusts
gained strength, private Russian elements were eliminated and replaced onceagain by the Soviet state. The foreign elements, however, were still needed.
Their turn was to come at the end of the decade.
THE PROCESS OF ACQUIRING FOREIGN TECHNOLOGYThe Bolsheviks were revolutionaries par excellence. But revolutionary
dogma contained no hints on the operation of a socialist economy. On this
subject Marx, Engels, and Lenin were silent.
In spite of this silence, there was a clear recognition of the place of technology.
The machine was the Marxian engine of progress. Given ignorance of the
functions of the entrepreneur, it is not surprising that 'industrialization* andits superficial symbols, the tractor, the automobile, and machines in general,
were seen as the high road to plenty. The assessment was superficial. It wasassumed that the machine would work as well in a socialist environment as in
a capitalist environment. The concepts of scarcity, rationality, and choice in
relation to technology and innovation did not penetrate Leninist thinking.
The end result was technological naivety, and this was compounded by anoverriding concern with things political.
Exhortations, slogans, shock methods, and ideological purity were seen as
the solution to all problems, including machine and production problems.
The collapse after the Revolution was a blow to the ideologues and was
" Scheffer, op. cit., p. 174.
" U.S. State Dept. Decimal File, 66 1 . 1115/484. See New York Times, November 16,1921, p. 13, col. a, for German assistance to the salt industry.
The Necessityfor Foreign Technology and the Process of Acquisition 319
explained away on the basis of exogenous conditions and enemies of the
Revolution rather than a deficiency in the political ideology applied to
economic fact. It was not Lenin who saw the solution; it was Krassin, ex-
director of Siemens-Schukert A-G in Petrograd—capitalist turned revolution-
ary. Lenin had the pragmatic wisdom to adopt the Krassinist solution.
Introduction of NEP, concessions, and foreign skills and technology did
not completely inhibit experimentation with a 'socialist technology.' Attemptswere made to develop an indigenous technology to reduce reliance on the
West. No attempt in the 1920s was successful, unless one counts the 2 percent
of drilling by the turbine method (an indigenous development). If we place
to one side the technical incompetence of the trust personnel, the root cause
for failure was the superficial political view of technology and the denial
of the necessity for choice among innovations. Choice became a political
decision. The attempt to manufacture the GNOM, a small Soviet-developed
tractor was a complete failure. Machinery was purchased in Germany andinstalled in the old Balakov factory. No tractors were ever produced. Therewere two fully equipped automobile plants (the AMO and the Russo-Baltic)
;
neither produced an indigenously designed automobile. The comic opera
production of the Putilovets tractor (a copy ofthe Fordson) prompted Sorensento suggest blowing the plant out of its misery. The 700 'tractors' producedheld together only a few weeks. The German and American engineers who tried
to re-design and re-start the Kertech steel works complained of political
interference in decision-making. And so on. In the face of these failures,
complete reliance was placed upon Western help, a solution rationalized
as the necessary prelude to 'socialist construction.' The reliance became so
great that the Five-Year Plan did not get off the ground until after contracts
had been placed with Western companies and stiff penalty clauses inserted
for failure to meet construction deadlines.
THE GERMAN 'SECRET' ENGINEERING DEPARTMENTSThe protocols to the 1921 trade agreement and the Rapallo Treaty with
Germany were the foundation for the transfer of massive German technical
aid. Inconclusive references to this transfer can be found throughout theState Department and German archives; nothing of substance has appearedin Western news media or books on Soviet development. This transfer hasbeen as deeply buried as it was extensive.
It has been extraordinarily difficult to quantify the transfer. The data is
exceedingly fragmented—much more so than that for any other aspect of this
study.18 A number of lists of German firms marked 'Streng vertrauchlich,'
" Material on German engineers in the U.S.S.R. is scattered throughout MicrocopyT-120, Serials L»v3i I"3°S, and L391 to L395.
3 ao Western Technology and Soviet Economic Development, 1917-1930
for the attention of Minister Wallroth, were found in the German archives.Two of the lists were dated the 14th and the 19th of August 1922: a significantfact, as this was exactly the point at which Bogdanov proclaimed 'the end.'Material in the State Department files backs up the belief that when 'the end'was reached, massive German assistance moved in to restart the closed plants.In some cases the lists make reference to specific projects, such as Carbo IIand some Agrar projects which have not turned up elsewhere and which cannotbe identified.
The 2,000 or so German engineers and technicians who moved into Sovietindustry after Rapallo were replaced by a greater numberof American engineersafter 1927-8. These were employed by almost all trusts, including Giprotsvet-met, Selmashtroi, Steklostroi, Giproneft, Gipromez, Resinotrest, Tsentro-boom, RKI, AKO, Zernotrest. 16 The most noticeable feature, apart fromtheir numbers, was the fact that they were spread across the face of the Sovieteconomy (see table 20-3). They were employed by all design and constructionbureaus. The only gap was in the furniture industry. Large numbers ofAmerican specialists were concentrated in 'key' activities. For example, in
1929 there were 66 foreign engineers in the three trusts Tokmekh (instru-ments), Mosstroi (Moscow Building Trust), and Khimtrust (the ChemicalTrust). 20 The range of employment went from water irrigation projects tocandy manufacture. Nor were the Soviets reticent in admitting their acquisitivedragnet (although in more recent times they appear to have gone to greatlengths to reduce dependence on Western skills)
:
In matters of technical assistance we follow neither an English, nor aGerman nor an American orientation. Our orientation is a Soviet orienta-tion. In every country we are ready and willing to learn in those areas inwhich that country is most advanced. When we had the problem ofmodernizing the petroleum, automobile and tractor industries we turnedto the United States, as America is the leading country in these industriesWhen it came to the chemical industry we asked for German help and itis no fault ofours ifwe were forced to go elsewhere for part of our technicalassistance. . . .
21
Planning and administrative posts were handed over to foreigners. H. J.Larsons was Deputy Chief of Currency Administration; Alcan Hirsch wasChief Engineer at different times for Chemstroi, Chemtrust, Giprokhim andGiproazot, as well as Chief Consultant to the heavy chemical industry;
" See Bron, op. cit., pp. 145-6, for a more complete listing.*° Torgwo-Promysklennaya Gazeta, No. 166, July 23, 1929." Ekonomickeskaya Zhizn, No. 225, September 29, 1029. Compare this Soviet state-
ment, which is clear enough, to the numerous statements in Western literaturewhich argue that the Soviets developed without any foreign assistance (SeeHolzman, op. at., L. Fischer, op. cit., and M. Dobb, op. cit.)
The Necessity for Foreign Technology and the Process of Acquisition 321
Littlepage was chief engineer, later Deputy Director of Soyuszoloto. Downs
was Technical Director of the Altai Polymetal Trust and so on. Even the
sacred post of planning director at Gosplan was at one time reportedly held
by a Swede.28 That these individuals were needed is reflected in Party
speeches and articles. Rykov, speaking before the First Moscow Oblast Soviet
Congress in October 1929, related that the U.S.S.R. had had considerable
success with foreign technology and the use of foreign techniques and that
this had overcome technical backwardness and the shortage of engineering
cadres. He indicated the practice was to be extended, and mentioned cases
in which Soviet institutions had been working *a great length of time' on
projects when foreign consultants had checked and found the plans and
construction deficient, which had necessitated starting again.*8 Ruykeyser's
experience at Uralasbest confirms this possibility. One problem was that the
proportion of technical personnel to factory workers in the more advanced
countries of the West was about 10-15 percent, while in the Soviet Union
it was not more than 2 percent. Of this 2 percent, only half had more than an
elementary education. Of the plant directors in 770 works, 3.5 percent had
no school education whatsoever, 71.6 had an elementary education, and the
rest a high school education.** Given this shortage, it is not surprising that
large numbers of Russians were sent abroad for training. All technical-assist-
ance agreements and most equipment-purchase agreements contained clauses
enabling the Soviets to have groups of their personnel trained abroad. This
training was normally a few months, and no case has been uncovered where it
ran longer than one year. In 1925-6 about 320 Soviet engineers were sent
abroad; this rose to more than 400 in 1927-8 and to more than 500 in 1928-9,
These were individual training visits in addition to the much greater number
of technical delegates who went abroad for exploratory purposes.
Although there were ways of ensuring that these engineers returned to the
U.S.S.R., it was more difficult, but not impossible, to retain Western
engineers against their will. There are however some cases of the latter.*5
The concession itself was a method of technological transfer. All such
agreements required the transfer of the latest in Western technology, and some
of the trading agreements {such as RAITCO) appear to have been much more
U.S. State Dept. Decimal File, 336-129-99.
U.S. Consulate at Riga, Report 6496, October 22, 1929.
U.S. Consulate in Vienna, Report zitf, April 9, 1929 (3 16-1 10-1079.)
For example, see Fred E, Beal, Proletarian Journey (New York; Hillman Curk,I 937)- Seal met H. N. Swayne (an American) in Fergana, Uzbekistan. 'He wassupervising the building of a ein mill for the Uzbekistan Soviet. He had two co-
workers in this enterprise, an Englishman and a German. All of them were kept in
the district against their will. How? The Russians couldn't find their passports. . ..'
(P. 254.) Beal \4as a Communist Party member.
322 Western Technology and Soviet Economic Development, igxy-igjo
vehicles for the transfer of Western technology than means for the Western
partner to 'trade' with the U.S.S.R. When the transfer was completed, the
concessionaire was expropriated, as Leninist dogma dictated. There were few
cases of compensation and these (Mologa and Harriman) were for tactical
reasons involving the possibility of acquiring other fields of Western skills.
After 1925, news of concessions was heavily restricted and in 1927 made an
act of espionage.
Foreign companies did little to enlighten the Western public, and indeed
there are reports that the companies themselves put effective clamps on news
concerning concessions.
After 1927 the Type III technical-assistance agreement was widely used.
Where assistance had previously been tied to the purchase of equipment on
a 'turnkey' basis, it was now the subject of separate agreements. At the same
time, the emphasis moved away from Germany and toward the United
States, although the Soviets still had great interest in acquiring the fruits of
German scientific endeavors. From January 8 to 1 5, 1 929, a German 'Technical
Week' was held in Moscow, and a series of lectures was presented by Germanprofessors and experts who came (all expenses paid) for the occasion. Thelectures included several by technical directors of German firms such as
Telefunken Radio, A.E.G., and Frederich Krupp, and directors of technical
institutes such as the Mulheim Coal Mining Institute and the Chemical
Research Institute. The theme was the transfer of German work to the Soviet
Union in the 'search for peace.' 2*
The Smolensk archives contain an example of the efficiency of the internal
distribution of Western technology within the U.S.S.R. The State Institute
for Foreign Technical-Economic Information published a monthly entitled
Fruitgrowing Economy (presumably one of a series of such journals). This was
a mimeographed circular which detailed in a summary manner the current
results of Western research. It abstracted such obscure journals as the
Agricultural Gazette ofNew South Wales, which would be difficult to locate in
even a well-stocked Western library. Matching dates of the original articles
with date of publication shows that the time difference was only a matter of
months.27
PROBLEMS IN THE ACQUISITION OF FOREIGN TECHNOLOGYThe transfer was by no means smooth and efficient. Ekonomicheskaya Zkizn
made a survey of the inefficiencies resulting from use of foreign technology. ,a
M U.S. Consulate at Riga, Report 5869, February 2, 1929. (340-6-499.)" Smolensk Archives, Microcopy T 87, Roll 31, File WKP 264.
" Ekonomicheskaya Zkizn, No. 57, March 7, 1928; No. 72, March 25, 1928; andNo. 83, April 7, 1928.
The Necessityfor Foreign Technology and the Process of Acquisition 323
Enormous wastage of funds was found. This was partly due to lack of foresight,
partly to inexperience and lack of coordination, and also to lack of funds at
strategic moments.** Many British and German firms may have supplied
inferior equipment, although this may be a Soviet rationalization of inability
to cope with more advanced technical systems. However, it is difficult to see
what protection was available if foreign manufacturers for one reason or
another wished to foist second-rate and inferior equipment onto the Soviets.
In the absence of an indigenous technology, they could compare performance
only to their own antiquated plants or to other foreign purchases. There were
no impartial arbiters built into the economic system.30 It is also difficult to see
how they could adapt a technology developed for another and presumably
different set of relative factor scarcity patterns.
There were many cases of machinery being bought before the plant had
been erected, so that complete factories were left standing, often with inade-
quate protection, until plants were erected. There were cases of plant and
equipment not suiting each other. Given the very precise civil engineering
tolerances required in modern construction, this is not too surprising. A paper
factory in Leningrad had a building ready but only part of the equipment,
'and even this [could not] be assembled before the arrival of special foreign
technical personnel who [were] having difficulties in obtaining visas.' Lack of
coordination between foreign suppliers of equipment for the same plant was
quoted as a major delay. A textile mill with a capacity for 127,000 spindles
had only received 15,360. Equipment for a power station in the Don was lying
on the ground, as the project had been abandoned. There were no funds
available to install equipment at the Marti plant in Nikolaev; two plants of
Ugostal (Petrovsk and Lenin)—the railroad workshops at Dnepropetrovsk
and the Ukrainian Silicate Trust—had the same problem. The Komintern
locomotive plant at Kharkov changed its plans and would not use equipment
imported for its use. Other equipment valued at almost 400,000 rubles at the
same plant was idle because there was no electrical power for installation.
Transportation, communications, and similar problems were delaying and
confusing, and diverted quantities of imported materials.
This problem of unused foreign equipment appears to have been wide-
spread. Izvestia (March 31,1 928), in an article entitled 'Problems with imported
equipment,' reported that Khimugol had imported 1.3 million rubles worth
B&rmine and Kravchenko both made this point.
For example, in 1931 the Soviet* bought one-third ofthe output of Ruston-Bucyrua
(U.K.), manufacturer of mechanical shovel*. 'The Soviet purchase* . . . not
only helped to improve our earnings record, but also enabled Ruston-Bucyrus to
clear out most of its stocks of obsolete Ruston and Homsby models.' Dtsigntdfor
Digging, p. *6o.
324 Western Technology and Soviet Economic Development, 1917-I93O
of equipment which could not be used for at least two year*. Similar delays were
reported for the Kharkov locomotive works, the Krivoi Rog power station,
and a bolt-making works. Curiously enough, on the same day Pravda ran an
article entitled 'Methods of transferring foreign techniques,* which described
the channels to be used : first, sending Soviet engineers abroad ; second,
importing foreign engineers ; and third, utilizing technical-assistance contracts.
The actual ranking order of use appears to have been the reverse. This article
laid the blame for mistakes on the procurement organs of the government and
especially their failure to use up-to-date catalogs. There were cases of machin-
ery imports in which the design was of 1890 vintage.
Restoration and modernization of the electrical equipment industry was
almost entirely dependent on imported machinery, and in 1930 this represented
90 percent of all boilers, turbines, and generators installed. It was the resultant
wide diversity of models which resulted 'in complicating the design, erection
and construction of generating installations to a large extent.' 81 The balance
of 10 percent was produced within the U.S.S.R. with foreign technical assist-
ance and further compounded the diversity problem. Further problems arose
because the Soviets insisted on non-standard features in turbine development
;
these turbines were produced at the U.K. works of Metropolitan-Vickers, and,
if the Soviets are to be believed, some 25 of these turbines were giving trouble
by about 1930-1."
The uninhibited copying of Western products may not always have been
the outright gift it superficially appears. Sorensen, of the Ford Motor Com-
pany, comments on this:
What the Russians had done was to dismantle one of our tractors . . .
and their own people made drawings of all the disassembled parts. I
visited a department where the rear axle and the final drive were being
assembled ... a lot of trouble with the worm drive ... it was
apparent that, while the Russians had stolen the Fordson tractor they
did not have any of our specifications for the material that entered into
the various parts. And you can't find that out merely by pulling the
machine apart and studying the pieces.33
Sorensen probably understates the problems. Even if a qualitative analysis
was made, for example, on the axle steel, and a specification produced, the
grade still had to be manufactured. The heat-treatment problems alone would
be a major headache. Many Soviet products reported as of poor quality are
probably no more than imperfect copies of Western products. Production
of quality required concomitance of design, development, and production,
" Electric Power Development in the U.S.S.R. (Moscow: 1NRA, 1936), p. 101.
» Correspondence Relating to the Arrest of Employees 0/ the Metropolitan Vickers
Company at Moscow, Command Paper 4286. (London: H.M.S.O., 1933), p. 9.
" C. E. Sorensen, op. cit., p. 202.
The Necessityfor Forei°tt Technology and the Process of Acquisition 325
THE SHAKHTA AFFAIR
In 1928 the Soviets staged the first of their show trials involving foreign
engineers. The Shakhta affair concerned five German engineers of A.E.G.
working in the Shakhtinsky coal mines in the Don region." The official
charge was discovery of 'a counter-revolutionary plot to destroy and disor-
ganize the coal industry.' 36 The engineers were accused of having links with
former mine owners and the Polish counter-espionage service. It was said
they had started fires, created explosions, wrecked coal-cutting machines,
broken-down shafts, and generally created mayhem in the mines. In sum, they
were accused of sabotaging 'socialist construction.' The burden of the accusa-
tion was placed on the foreign engineers as individuals and not on the foreign
companies. Rykov carefully avoided accusing the firms of improper behav-
ior.M The timing of the arrests, just as a German-Soviet treaty was to be
negotiated and when the Soviets clearly needed German help, mystified most
observers. U.S. State Department archives contain a number of foreign
government reports, and their concensus is that the real reason for the arrests
was the dominant place achieved by the Germans in Russian industry. They
had become too powerful and threatened the hold of the Party. The move was
against the 'united front' of specialists, old-time Russian engineers, trade
unions, many of the workers, and some of the 'red' plant directors."
The specialists controlled operation of many of the most important plants.
They had supported and been supported by the old-time Russian engineers,
not only because of similarity of political thinking but also by common
background training and experience. The trade unions supported the foreign
specialists as a means of getting production; many workmen viewed the
foreign engineers with respect and the new 'red' engineers with derision.
Many 'red' directors were interested primarily in output, recognized that the
foreign specialists could get output, and placed day to day operations in their
hands.88
Remaining Trotskyites used the question of specialists to 'prove' the Stalinist
clique bourgeois; the latter then had common cause with the OGPU to
attack thts threat to Stalinist power. Terrorism via mass arrests was used to
About 35 German engineers were jailed at this time on various charges, but only
five as a result of Shakhta; and two of these were immediately released. Thenumber in prison is an interesting indicator of the large number of Germanengineers in the U.S.S-R.
Isvestia, No. 6o, March 10, 1028.
Izvestia, No. 61, March It, 19*8.
U.S. State Dept. Decimal File, 316.6221/13 (Polish Foreign Ministry, Report);
361.6221/25 (German Foreign Ministry, Report); and 316-6221/28 (Greek Charge
d'Affaires in Moscow, Report).
Sevodnia (Riga), March 21, 1928 [article by 'K.C (Moscow)].
3z6 Western Technology and Soviet Economic Development, 1917-1930
frighten the foreign elements and their Russian allies. Choice of Shakhta was
not accidental. Here the conflict between the 'red' and the foreign engineers
was acute. Lambert, formerly a Belgian consul in Moscow, argued that the
choice of the Ukraine was part of a reaction to Ukrainian nationalism which
had sent many Muscovites back to Moscow and promoted native Ukrainians."
The Polish Foreign Office pointed out that it was noticeable that the many
Belgian, Austrian, English, and American engineers were not molested. The
Ministry argued this was one major aspect of an attack on German engineers.
Further they were to be seized as scapegoats for the general inefficiency."
U S. State Dept. Decimal File, 316.6221/32.
U.S. State Dept. Decimal File, 361.6221/13, Report 1671.,
April 10,,1928. In v.ew
of the advice given to American firms in iga8 that it was safe to enter the U.S.S.R.,
the foltowS: facts should be noted: (1) There was no shred of evidence of sabotage
a«inS tTe Germans. None was produced at the tr.als andnone has ever been
o?oduced since 1928. They were 'acquitted' by the 'court.' {2) They were imprisoned
FnConditions described by the German Embassy representative Legat.onssekretaet,
nrSleo as 'incredibly horrible,' while one of the unfortunate Germans was
fuffeing torn'pneumonia' (U.S. State Dept. Decimal File, 36,.66«/. 3 ,Report
Thu'l^^i'n raises the question whether the U.S. State Dept is justified in
S^dv« to Un ed" States firms and individuals which is contrary to the
fStso th«e parties in the light of evidence with Departmental files. One
Resumes the function of the State Dept. is to protect American citizens and yet
today (1966), after the Baaghoro and Mott cases (among others), the State Dept.
is stilt encouraging travel by tourists in the U.b.b.K.
CHAPTER TWENTY
The Western Contribution to Soviet Production
and Productivity, 1917-30
THE CONTRIBUTION OF THE EARLY CONCESSIONS
The original intent of the concession was to acquire both foreign finance and
technology; both were deemed equally necessary. As it turned out, only
technology was acquired, but this was facilitated by sufficient private credits
to enable the transfer to take place in a reasonably satisfactory manner. It is
misleading to argue that economic development depends only on finance
capital; the latter is only a vehicle for the transfer of technology. It is also
misleading to argue that, because there were no government-to-govemment
financial transfers, the Soviet Union developed without Western assistance.
The major factor in development is technical progress. The key question to
be asked in the case of Soviet development is, from what did its technology
derive? From internal resources, or from external transfers?
Examination of the role of the early concessions suggests that they played
an important part in reversing the industrial decline and establishing the base
for development. International Bamsdall introduced modern American
methods of rotary drilling and deep-well pumping with results described in
chapter z. The lumber industry was wholly dependent on the transfusion
introduced by the operating sections of the mixed companies Russangloles,
Hollandolcs, and Norvegloles. All transportation was dependent on early
German concessions (Russtransit, Derutra, etc.). The locomotive repair
program was undertaken abroad. Most modernization work in textiles and
clothing originated with the Sidney Hillman concession. Foreign markets
were developed by Type II mixed company concessions. These early conces-
sionary arrangements (not numerous, but located in strategic sectors of the
economy), when coupled with the post-Rapallo assistance from Germany,
helped the Soviets to turn the corner.
3a8 Western Technology and Soviet Economic Development, zgi^-ig30
There was an interval in 1921-2 when contemporary sources were reporting
industrial revivals in some sectors and shutdowns in others. These parallel
but opposite movements are related precisely to foreign assistance and the
concessions. McKeevsky was reporting its mines were closing down while
the Kuzbas coal mines were responding favorably to the work of the American
Industrial Corporation. In 1923 shafts in the Don were reduced from 202 to
176, while AIK doubled Kuzbas output. While Embaneft and Grozneft
were declining, Azneft was picking up new life with International Barnsdall.
In sum, the upswing may be linked precisely to the introduction of the
first concessions and German technical assistance. No case of an upswing
was uncovered which was not so linked.
SECTORAL IMPACT OF CONCESSIONS ON THEEARLY SOVIET ECONOMY
The proposition that every industrial sector of the early economy had
foreign technical assistance, specifically in the form of pure Type I, mixed
Type II, or technical-assistance Type III contracts, has been examined in
detail. The proposition is much too important to be dismissed with the verbal
generalizations typical of much discussion of Soviet development. The next
pages contain an empirical demonstration of the validity of the argument that
every corner of the economy was penetrated by Western technology between
1917 and 1930.
The structure of the inherited tsarist economy was sufficiently broad that
it can be spanned with the Standard Industrial Classification. 1 This economy
contained in embryonic form representatives of most modern industries. The
SIC is an identification code for the modern American structure, but the
components of today's structure can be traced clearly to the first two decades
of this century. All sections of the modern SIC were represented by at least
one plant in tsarist Russia, and this was the structure inherited by the Soviets.
The structure included aircraft and automobile manufacturing. The advantages
of using the SIC code are that we may be sure that every sector in the
economy presents itself for examination, that we are sure of discussing the
whole economy, and that we do not dismiss some sectors because they happen
to be inconvenient for the hypothesis. It has been, for example, inconvenient
for the Soviets to admit there were aircraft and automobile technologies
(of an indigenous nature) in tsarist Russia.
• The Standard Industrial Classification (SIC) (Washington, D.C.: Bureau of the
Budget 1957). Manufacturing is divided into 43 sectors, numbered o to 49.
(Numbers 03 to 06, 18, and 43 are not used by the Bureau.) Sector 30 has been
added by the writer to include trading.
The Western Co/ttribution to Soviet Production and Productivity, 1917-30 329
Tables 20-1 and 20-2 classify concessions by country of origin and relate
these to major groups in the SIC. Table 20-1 covers Type I (pure) and Type
II (mixed) concessions while table 20-2 covers Type III or technical-assistance
agreements. Where a concession has been identified and described in the text
for a specific sector, its name has been inserted into the relevant portion of the
matrix. In some sectors more than one concession existed but the extent of
duplication is not indicated and can be determined from the text. A later set
of tables examines the depth of technological impact within each sector. It
should be added that the identification of concessions is still incomplete; it is
estimated that less than 70 percent have been described and listed in this
study. The remaining 30 percent will not come to light until the Soviets
decide to release their archival data.
After compilation, the tables were scanned to determine the concession
type and country making the greatest contribution to the Soviet industrial
Table 20-1 SECTORAL IMPACT OF FOREIGN CONCESSIONS(TYPES I AND II)
StandardIndustrial r..J.. -#....
{Ma)Or Group)
Source of Concessions Skill and Capital
United States Germany Othert
OI»
330 Western Technology and Soviet Economic Development, Z917-1930
TabU 20-1 Continued
Standard
ClamfiTalwn Industry
(Major Group)
The Western Contribution to Soviet Production and Productivity, 1917-30 331
structure {i.e., which type is represented in most sectors). The type with the
largest number of representations was United States Type III technical-
assistance agreements, of which there were 36. This is consistent with our
argument that United States technology was the preferred technology.
Out of a total 43 sectors* that could have received concessions and the transfer
of Western skills and technology we identified 36, or 84 percent. As the early
economy consisted of only a few plants of prerevolutionary origin in each
sector, the transfer could be rapidly spread within the sector. The agreements
were made with either the trust overseeing the plants or with the best equipped
and largest member of the trust group. Consequently, identification of even
one technical-assistance agreement with a member of a narrowlydenned indu-stry with only a few plants implied that the transfer could be rapidly spread.
Bogdanov indicated that the trusts were created with the prime purpose c-f
transferring foreign technology; in practice they were well suited for this
purpose.
It is interesting to note the contiguity of trusts and the SIC classification
groupings; it is almost as if Lenin had the SIC Manual in front of him whenhe drew up the contours of the trusts. Crude oil (SIC 13) plus petroleum
Table 20-2 SECTORAL IMPACT OF FOREIGN TECHNICALASSISTANCE AGREEMENTS (TYPE HI)
Standard
c£$wln Industry Nam*(Major Croup)
Source of Technical Assistance
United States Germany Others
01
33a Western Technology and Soviet Economic Development, 1917-1930
Table 20-2 Continued
StandardIndustrial *__ _»___»__-_ \r
The Western Contribution to Soviet Production and Productivity, 1917-30 333
refining (SIC 29) equals the Neftsyndikat, comprising Azneft, Grozneft and
Embaneft. Anthracite mining (SIC 11) plus bituminous coal mining (SIC
u) equal the coal trusts (Donugol, etc.). Ordnance (SIC 19) equals the
military trust. Scientific Instruments (SIC 38) equals Tokmekh; SIC 30
equals Resinotrest; SIC 33 equals Ugostal; and so on. There are two
possible explanations. First, when the trusts were being designed with the
objective of technological acquisition as their prime purpose, they may have
been grouped in order to facilitate the transfer. Second, there is an internal
logic to the structure of modern industrialization, and the early Soviet
economy had the same structure as the early American economy, although the
similarity has not persisted. In other words the grouping may have been
obvious on grounds of logic.
Examination ofthe 36 (out of a possible 43) sectors covered by United States
technical agreements and the 7 sectors not covered by such agreements
suggests that, in fact, coverage was greater than 84 percent and was virtually
complete. In other words the Soviets transferred United States technology
to every sector.
Of the seven listed as not receiving technical assistance, several received
informal aid as a by-product of purchases of large installations. Purchases of
sawmill equipment included equipment installation. Fisheries received indirect
aid from Pacific Coast manufacturers in the construction of large crab and
salmon canneries. Even SIC 19 (ordnance) received indirect aid through
the purchase of Curtiss engines. This problem is overcome in table 20-7,
which examines the degree of impact and includes two types: direct and
indirect technical impact.
The second largest group of concessions is the 'other country' Types I
and II category (table 20-1). These comprise pure and mixed concessions with
countries other than the U.S. and Germany. Out of 44 possible 'other country1
sectors, these concessions were identified in 33 sectors, or 75 percent. Theywere concentrated in raw materials development. The category contains
Lena Goidfields, Ltd., Tetyukhe, Kablitz, Trilling, the Japanese Sakhalin
concessions, SIMP, ASEA, SKF, Union Cold Storage, Altman, Raabe, and
so on. Pure 'other country' concessions were comparatively rare in the
industrial and transportation fields. When they were granted, they were limited
in scope, occupied prerevolutionary plants in decrepit condition, andwere granted a technological area in which the limited company was anacknowledged world leader such as AGA, SKF, and the Cunard Line.
There were no 'other country' pure concessions in the fields of ordnance,
chemicals, petroleum refineries, and, generally, transportation. These were
strategic sectors requiring the transfer of German or United States technology.
334 Western Technology and Soviet Economic Development, lyx^lgjQ
The third largest group is German technical-assistance contracts. There
were 32 sectors with identifiable agreements of this type, or 74 percent. This
group contains many of the largest and best-known German companies:
Demag, Koppers, Humboldt, Krupp, A.E.G., Siemens, Junkers, and so on.
The fourth largest group comprised German pure and mixed concessions
representing work in 29 sectors, or 66 percent. This group also contained
well-known German firms; Leitz, Krupp, Hamburg-Amerika Line, etc.
The fifth group comprised United States pure and mixed concessions and
is represented in 27 sectors, or 61 percent. This included also some well-known
names: Harriman, International Oxygen, International Harvester, and Stand-
ard Oil of New York.
The last and smallest group comprised the 22 'other country' technical-
assistance agreements, represented in 51 percent of the economy. This small
group confirms the argument that the desirable technology was from Germany
and the United States. When it was transferred from one of the 'other countries'
it was always in a highly specialized and narrowly defined area, such as ball
bearings, synthetic nitrogen, radio apparatus, telephone equipment, dairy
apparatus, and artificial silk technology. In sum, the Soviets went to countries
other than the United States and Germany when there was a decided supe-
riority in the technology in question.
Table 20-3 SUMMARY STATEMENT OF SECTORAL IMPACTOF TYPES I AND II CONCESSIONS
Types I and II Concessions Associated With :
United States Germany Other countries
Sectors with Type I
& II concessions 27 (61 percent) 29 (66 percent) 33 (75 percent)
Sectors without TypeI & II concessions* 17 (39 percent) 15 (34 percent) 11 (25 percent)
Total sectors*" 44 {100 percent) 44 (100 percent) 44 {too percent)
* This is a conservative statement, as less than 70 percent of operating concessions
have been unearthed.
*• Summary regardless of geographic association:
95.0 percent of all sectors had concessions (42 sectors)
5.0 percent of all sectors did not have concessions (2 sectors)
There is another way of looking at tables 20-1 and 20-2 and the summaries
contained in tables 20-3 and 20-4. How many sectors of the early Soviet
economy received concession agreements? Of the 44 sectors of the economy
open for Types I and II concessions, 42 sectors, or 95 percent, actually
received them. Of the 43 sectors open for Type III technical-assistance
agreements, some 40 sectors or 93 percent received them.
Th* Western Contribution to Soviet Production and Productivity, 1917-30 335
Table 20-4 SUMMARY STATEMENT OF SECTORAL IMPACTOF TYPE III TECHNICAL ASSISTANCE AGREEMENTS
Technical Assistance Agreement! Associated with:
United State* Germany Other countries
Sectors with t/a agreements 36 (84 percent) 3a (74 percent) 91 (51 percent)Sectors without t/a agreements 7 (16 percent) 11 (a6 percent) 21 (40 percent)
Total sectors 43 (100 percent) 43 (100 percent) 43 (100 percent)
Note: Summary regardless of geographic association:
93 percent of all sectors had technical assistance agreements (40 sectors).7 percent of all sectors did not have technical assistance agreements (3 sectors).
Source: Table 20-2.
Finally, if we assume that the technical transfers take place irrespective oflegal ownership or operational status (i.e., that we do not distinguish betweenconcession types), then only one sector out of the 44 (furniture and fixtures)did not receive a concession and thus had no opportunities for technologicaltransfer. Of the total sectors 98 percent took advantage of foreign technology,and this was supplemented by indirect transfers.
Table 20-5 SUMMARY STATEMENT OF THE SECTORAL IMPACTOF ALL CONCESSIONS, IRRESPECTIVE OF TYPE
Concessions Associated with:
United States Germany Other countries
Sectors with concessions 38 (86 percent) 38 (86 percent) 39 (89 percent)Sectors without concessions 6 (14 percent) 6 (14 percent) s (11 percent)
Total sectors 44 (' 00 percent) 44 (100 percent) 44 (too percent)
Note: Summary regardless of geographic association:
98 percent of all sectors had some form of concession (43 sectors).a percent of all sectors had no form of concession (1 sector).
Source: Tables ic-i and 20-2.
SECTORS WITHOUT IDENTIFIABLE CONCESSIONSTo this point discussion has been concerned with sectors possessing
identifiable concessions. The results imply an infusion of Western skills andtechnology. As Krassin foresaw, 'Each concession (would) . . . infuse aspark of vitality into the country's industrial life and would be in itself atraining ground for Russian technical specialists and workmen.'* Use of theSIC code ensured that all sectors came up for consideration in an impartial
• Krassin, op, tit., p. 184.
336 Western Technology and Soviet Economic Development, 1917-1930
manner and that any possible biases on the part of the researcher would be
eliminated. Possible criticism of the use of the SIC is far outweighed by
the impartiality obtained.
Examination of sectors without concessions indicates the thoroughness
with which the Soviets undertook this program. It is difficult to see how the
canard of 'no large number of concessions' arose and spread to the point of
becoming part of State Department advice to a well known scholar.* It is
interesting to note that the handful of books written in 1928-9 on the impact
of concessions universally reduced its importance, and nothing has been
written since that time.,
Of 44 sectors, only one had no identifiable concession. This is SIC 25
(furniture and fixtures): hardly surprising, as furniture making is a small
scale industry with a static technology. Further only two sectors (apart from
furniture) had fewer than two concessions: tobacco manufacturing and motor
freight transportation, each of which had one concession. Given the extensive
makhorka industry, the former exception is not surprising. The lack of motor
buses until 1924 and absence of roads makes the latter exception understand-
able. There was no Soviet automobile industry until the Ford-Fiat agreements
of 1928-9. All other sectors had concession agreements with two or more
countries Reliance was not placed on one source of technology. The net was
spread wide enough to capture all the benefits of Western technology wherever
they originated.
THE DEGREE OF TECHNOLOGICAL IMPACT WITHIN
SPECIFIC SECTORS
It now remains to estimate the degree of impact within each sector. Table
20-6 estimates the direct and the indirect impact of Western technology upon
each of the sectors discussed in Part I.
Table 20-6 DIRECT AND INDIRECT IMPACT OF WESTERNTECHNOLOGY BY SECTOR AND SU13SECTOR
Industry Estimated Direct Impact Estimated Indirect Impact
Oil industry (chap. 2)
The Western Contribution to Soviet Production and Productivity, 1917-30 337
Table 20-6 Continued
Industry Estimated Direct Impact Estimattd Indirect Impact
338 Western Technology and Soviet Economic Development, 1917-1930
Tablt 20-6 Continued
Industry Estimated Direct Impact
The Western Contribution to Soviet Production and Productivity, 1917-30 339
Table 20-6 Continued
Industry
340 Western Technology and Soviet Economic Development, 1917-1930
task was to get these plants started ; the second was to repair plants damaged
or in disrepair; and the third was to modernize. Although each industry solved
its problems in a slightly different manner, the importation of foreign skills
was common to all of them.
The description in the preceding pages indicates that foreign technology
had both an extensive coverage within the economy and a significant impact
within each sector. No other factors were capable of bringing about the same
end result. If internal skills or internal capital accumulation had existed then
perhaps the answer would not be as obvious. As the facts stand, the conclusion
is quite clear. The rapid growth of the 1920s was dependent on foreign
operative and technical skills. Electrical energy grew more rapidly than any
other sector; from a base of 100 in 1913 the index grew to 412 in 1929. There
is no reason to doubt the basic accuracy of these figures. The assistance given
Soviet trusts, together with the equipment known to have been imported,
could have accomplished this increase, even allowing for the previously
mentioned problems and inefficiencies in the transfer. By the end of the
decade, Lenin's dictum that socialism equals electrification was well on the
way to implementation. This was heralded as a triumph of socialist construc-
tion, but unless one defines the latter as Western enterprise operating in a
socialist economy, it should be hailed as a triumph of Western private enter-
prise working under enormously difficult technical and political conditions.
Western engineers were aghast, as their writings show, at the interference
from political 'straw bosses' whose contribution to construction was purely
verbal, generating great heat in a show of ideological fervor. The remarkable
growth of production in the 1920s is in those sectors which received the
greatest Western aid; coal, oil, pig iron, and rolled steel. Those sectors without
a great deal of aid barely improved their position during the course of the
decade.
The Western contribution to Soviet production between 1917 and 1930
was total. No important process has been isolated which was not a WesUto-East
transfer. The Soviets quite rationally made no attempt whatsoever to develop
completely new processes; even experimentation was limited and soon
abandoned. They concentrated on acquiring new Western processes, training
cadres of politically reliable engineers and establishing numerous basic and
applied research institutes. The question was not whether to transfer Western
technology but which process to transfer. Decisions were made on the basis of
Western factor resource patterns and these may, or may not, have been
applicable to the U.S.S.R. There are a few signs that the Soviets were aware
of this problem and induced Western companies to undertake the necessary
research and development work.
CHAPTER TWENTY-ONE
The Significance of Foreign Technology andConcessions for Soviet Exports
THE COMPOSITION OF SOVIET EXPORTSThe Bolsheviks were realists. There was little hope that largescale Westerngovernment credits would be forthcoming. World revolution was being actively
promoted, and great things were expected daily from the German proletariat,
for instance. It could not be assumed that even the most naive of WesternGovernments or the most grasp ing of capitalists was going to subsidize its owndownfall on credit terms. The alternatives were concessions, gold, or exports.The concessions policy was closely related to the drive for exports. A decree
signed by Lenin in August 1921 established an Extraordinary ExportCommission to assemble, process, and store raw materials for export. TheCommission had the right 'to impose fines and inflict punishment on personsguilty of delays.' l
Table 21-1
342 Western Technology and Soviet Economic Development, IQ17-1930
After this decree, a number of concessions were concluded under which
foreign companies entered the Soviet Union to handle the assembly and
export of animal products (eggs, butter, casings, fish and similar products).
In 1920, imports were primarily food and raw materials; by 1923 imports
were primarily capital goods. The first function of the concession was to help
solve the supply crisis and then develop materials for export. After 1923,
exports were between 99.7 and 100 percent raw materials and foodstuffs.
Table 21-1 suggests the significantly high proportion of Soviet imports
which consisted of capital goods, This is consistent with our hypothesis of
complete technological dependence on the West. The counterpart was a very
high proportion of raw material and foodstuffs exports. The U.S.S.R. was
exchanging consumer goods and raw materials for capital goods. This is not
just the mere exchange of resources; the gains from trade were far more
effectively captured by the Soviets as a result of their monopsonistic trading
organizations facing atomistic Western sellers. Further, even with equality of
bilateral bargaining, the Western investment in research and development
could not be recouped in sales to the U.S.S.R. Only if the Soviet Union were
to export freely its own technological advances would the balance be approxi-
mately even.
Very early trading efforts by the Soviets suggests that they did not then
appreciate the advantages of a monopoly trading organization, but after about
1923, any attempt by Western sellers to form a buying group was met by
vehement opposition and any concession (such as Russgertorg) which appeared
to be gaining bilateral bargaining strength was quickly disbanded or had its
wing clipped. Certainly the monopoly profits earned by the U.S.S.R. in the
fifty years following the Bolshevik revolution far exceed that of the 19th
century American trusts and 'robber barons' dealt with by the Sherman Act
ofl89°' L . -,
In sum, trade was used as a development mechanism. Manganese, oil,
lumber, gold and butter developed by concessions operating inside the Soviet
Union were sold on the Western markets by other concessions in which the
Soviets held a controlling interest. The foreign exchange generated was used
for purchase of capital equipment for the expansion and modernization of
the industrial structure.
THE SIGNIFICANCE OF PURE AND MIXED CONCESSIONS
IN RAW MATERIAL DEVELOPMENT
The concession may be related directly to the development of exports.
Table 21-2 takes the twelve leading exports and lists the related importance
of the concession as it has been detailed in Part I of this study.
The Significance of Foreign Technology and Concessionsfor Soviet Exports 343
Table 21-2 LEADING SOVIET EXPORTS AND SIGNIFICANCEOF CONCESSIONS
RankOrder
Exports
(19*7-8)
Value ofExports
thousand rubles
Percent ofTotal Exports
Significance of Comtssions1
Type I Type II Type III
1.
2.
3-
4.
S-
6.
7-
8.
9.
10.
oaFursLumberClothingEggsButterSugarFlaxManganeseWheatCasingsFish
124,0001 (9,207j 18,540103,16340,46239.12033.80325.89313,78111,210
10.659'0.367
650,295'
19.!
18.318.2
15-96.2
6.0
4.0
2.1
'•7
1.6
1.6
99.9 percent
XXX
xXxXx
XXXxXXX
XX
XxXxX
Xx
Notes: l X -• major significance
x — minor significance
* Percent of all exports: 80.9 percent
These items include just under 81 percent of all Soviet exports. Oil, furs,and lumber contributed just less than 20 percent each (together 55.6 percent)of this total; each activity was completely dominated by foreign assistancesupplied through concessionary arrangements.
CHAPTER TWENTY-TWO
Conclusions
The industrial structure of the Soviet Union between 1917 and 1930 was the
reorganized tsarist structure. This consisted of several hundred medium-to-
large manufacturing enterprises located in urban centers, notably Petrograd
and Moscow. This manufacturing complex was supplemented by numerous
self-contained mining enterprises in the Donbas and the Urals which were
centers of incipient industrialization. Some of these plants were large by any
standards. The International Harvester plant at Omsk for example was the
largest in the company's world-wide network. The first major conclusion is
that the tsarist industrial structure was not at all negligible. To say that
'Russia prior to 1917 was not unlike a country such as India on the one hand
or large areas ofsoutheastern Europe on the other,' 1 is rank absurdity. Airplanes
and automobiles of indigenous Russian design were produced in quantity
before the Bolshevik revolution. Although industrialization was restricted to
a few population centers, it utilized modern, efficient plants operating on
scales comparable to those elsewhere in the world. Further, there were obvious
signs of indigenous Russian technology in chemicals, aircraft, automobiles,
turbines, and railroad equipment.
The second major conclusion was that this structure was substantially
intact after the Bolshevik Revolution. Intervention did not affect the main
manufacturing areas. There was damage to the railroad system, particularly in
the Donbas and Siberia, and the Port of Petrograd was heavily damaged and
mined. Petrograd industry, however, was basically in operable condition.
Industrial damage was concentrated in the Ukrainian sugar industry and in
the Ural and Donetz Basin mines.
What, then, created the economic debacle of 1921-2?
It was not brought about by absence of operable production facilities. While
plants were in a state of 'technical preservation,' work discipline collapsed,
1 M. Dobb, op. tit., p. it.
Conclusions 345
and skilled workers, engineers, and managers fled into the villages or abroad.
The distribution system was abandoned as unnecessary in a socialist economy.
Productivity consequently sank to abysmally low levels, and the 'supply crisis'
followed on the heels of the rejected distribution system. Systematic destruc-
tion of a viable economy was aided by the inflation of the ruble to zero value
(on the basis that money was not needed in socialism), the 'instant demobiliza-
tion of industry' decree, 'free' public services, and the replacement of skilled
managers with unskilled proletarians. By August 1922 the Soviet economy wasat the point of collapse. This is not deduction. Lenin, Bogdanov, Arsky,
Krassin and others have made the point clearly. The end had come. As Krassin
phrased the problem, 'Anyone can help pull down a house; there are but few
who can re-build. In Russia there happened to be far fewer than anywhere
else.'1
The economic decline which directly followed the Revolution is unparalled
in the history of industrialized society; however, the Soviets not only survived,
but in 1924 were able to institute the Second Bolshevik Revolution and return
to the path of State control of industry. The factors behind the miraculous
recovery are detailed in the text.
In mid-1922 Soviet industry was at a standstill. Soviet inability, for lack of
skilled engineers and workers, to restart the tsarist plants is well illustrated
by the Russo-Baltic plant at Taganrog, moved during the war from Reval.
Four massive buildings were visited (and photographed) by the 1926 Ford
Delegation. The plant had furnaces, hammers, hydraulic presses, and a powerstation, as well as approximately 2,000 machine tools. These had been idle
since 1917, although coated with oil to keep the tools in some sort of preserva-
tion. The photographs indicate the gigantic size of the plant, idle for at least
nine years. It was operable although perhaps technologically out of date
compared to the rapidly developing industries in the West. The urgent needs
were two-fold: to restart the silent plants and modernize the equipment. Thetrust was the organizational vehicle adopted for these objectives. As Bogdanov
pointed out, the primary aim of the trust was the transfer of foreign skills andtechnology to fulfill both these urgent requirements.
Trustification and technical transfer were achieved step by step. First, a
selection from among important industries was made. Choice was on an
ideological basis. Railroads, mining, and machinery sectors were selected onthe basis of political, not economic, choice; they were only coincidentally
key sectors in the economy. In the process of selection, several key economic
activities, such as gear-cutting (Citroen plant) and air-brake manufacture
(Westinghouse Air Brake Company) were left in foreign hands. The pragmatic
' Krassin, op. cit.
346 Western Technology and Soviet Economic Development, 19x7-1930
Communists understood their own inability to run these rather complexenterprises. After selection, the remaining operable units were isolated fromthe inoperable, and the latter were left outside the trust structure. Theinoperable units were offered to foreign firms as concessions (the Berger and
Wirth dye plant, the Bergman ferrous metallurgy plant, the Kablitz boiler-
making operation, the AIK textile plants, the Lena and Kemerovo mines,
etc.)- In sum, the isolation procedure eleminated two categories of economic
activity from the trusts: first, complex operations requiring lengthy foreign
assistance, and second, those units requiring substantial modernization. These
were leased directly to foreign operators as pure concessions.
The remaining or operable units were then grouped into trusts. Most were
either dormant or working on an intermittent basis; given technical and
managerial skills, they were operable. The names were 'proletarianized' and
attempts were made to restart. In some plants 'white' engineers took over
from unskilled 'red' directors—notably in the electrical and machinery sectors.
But in all cases operation without the discipline of the market system led to
hopeless inefficiency. The answer to a massive loss was a massive subsidy.
These got out of hand by 1923 and were countered by the 'contraction of
industry' policy.
Contraction (i.e., elimination of the most heavily subsidized plants) was
concurrent with the injection of foreign assistance. Although this began as
early as 1919-1920, it received a strong assist from the German Trade Agree-
ment of 1 92 1 and the Rapallo economic, military, and trade protocols. Exten-
sive documentation in the German Foreign Ministry Archives attests to the
thoroughness and completeness of German economic and technical help after
1922. a Such assistance was at first almost completely German, in fact. TheShakhta affair reflects the influence of Germany in the U.S.S.R. The Soviets
were concerned about the massive infiltration and influence of Germanspecialists in Soviet industry. They had penetrated most large industrial andmining enterprises, and in many cases had formed understandings with the
prerevolutionary engineers. Whatever the judicial failings of the Shakhta
'trials,' the OGPU was probably correct in recognizing a threat to the
Revolution. As late as 1928, Soviet industry was run by a partnership of
German and prerevolutionary engineers independent of nominal Party control.
The tendency at the end of the decade was to turn increasingly toward
American technical leadership. Of the agreements in force in mid-1929, 27
were with German companies, 1 5 were withU nited States firms and the remain-
1 The writer examined rather cursorily more than 25,000 documents, including asmall group of Russian documents relating to this cooperation and the work of thevarious committees and sub-committees formed to channel the assistance. Com-mittees IV and V were mainly concerned with the economic and technical aspects.
Conclusions 347
ing ones were primarily with British and French firms. In the last six monthsof 1929, the number of technical agreements with U.S. firmsjumped to morethan 40.* It is this change which forms a logical break in the examination of
Soviet technology and industrial development. The usual break point—1928(the beginning of the first Five-Year Plan)—is meaningful only in propagandaterms; the Plan was implemented after a sequence of construction andtechnical-assistance contracts with Western companies had been let.
The Freyn-Gipromez technical agreement for design and construction of
giant metallurgical plants is economically and technically the most important.*
Despite the German work, the metallurgical industry was on a 1913 technical
level. It had not incorporated current advances in rolling techniques such as
the American wide strip mill or the powerful, heavy blooming mills developed
in the mid- 1920*5. The A. J. Brandt-Avtotrest agreement for reorganization
and reconstruction of the prerevolutionary car plant (the AMO) wasovershadowed by the 1930 Ford Motor Company agreement to build acompletely new integrated plant for the mass production of the Model A,the 2. 5 -ton Ford truck, and buses using Ford patents, specifications, andmanufacturing methods. The plant was erected by Albert Kahn, the builder
of River Rouge and so enabled the Soviets to duplicate the immense advances
of American automobile engineering within a few years of inception in the
United States. Two agreements with Orgametal by other American companies
completed assistance in the heavy engineering field. The electrical industry
had the services of International General Electric (in two agreements), the
Cooper Engineering Company and RCA for the construction of long-range
powerful radio stations. The Stuart, James and Cooke, Inc., contracts with
various coal and mining trusts were supplemented by specialized assistance
contracts, such as the Oglebay, Norton Company aid agreement for the iron
ore mines and the Southwestern Engineering agreement in the non-ferrous
industries. The chemical industry turned to Dupont and Nitrogen Engineeringfor synthetic nitrogen, ammonia, and nitric acid technology; to Westvaco for
chlorine; and to H. Gibbs to supplement I.G. Farben aid in the Aniline DyeTrust. This was supplemented by more specialized agreements from other
countries: ball bearings from Sweden and Italy; plastics, artificial silk, andaircraft from France; and turbines and electrical industry technology fromthe United Kingdom.
* Bran, Soviet Economic Development and American Business.1 The U.S. State Dept. Decimal File contains a rather curious exchange of letters
between Freyn Engineering and the State Dept. Obviously there had been a majorcommunication of ideas and attitudes between both parties. Both sides, however,refrained from placing the understanding on paper; or at least an understandinghas not been traced within the Archives. Those documents in the files suggest thatFreyn was powerfully influenced by the State Dept. viewpoint. (See U.S. StateDept. Decimal File, 661. 1116/62.)
348 Western Technology and Soviet Economic Development, igij-1930
The penetration of this technology was complete. At least 95 percent of
the industrial structure received this assistance. To demonstrate this, all sectors
of the economy have been examined impartially.
We may conclude therefore, that the basic Soviet development strategy
was to learn from that country considered to have the most advanced processes
within a given field of technology and to leave no industrial sector without the
benefits of this transfer process. In 1929-30, some 40 million rubles were spent
for technical-assistance agreements alone. When it is considered that the
marginal costs to the Western supplier were very small, that this ensured
extremely low purchase prices for technology {in the light of opportunity
costs), and that much of the transfer was done informally at no cost as a part
of equipment-supply agreements, then the magnitude of the benefits becomes
very clear. The greater part of this sum was spent in the U.S. ; 'In America,'
it was said, 'they do not guard manufacturing secrets so jealously.' 7
The success of this strategy was not lessened by the fact that political
interests always dominated economic requirements. When individual conces-
sions threatened the hold of the Party even remotely, the reaction was sharp
and ruthless. The Shakhta affair was an example of Leninist terror used to
bring a 'united front' into line, whatever might be the economic consequences.
The move from German to American technology was partially dictated by the
probability the American engineers were less likely to get tangled in the meshes
of counter-revolution, which had its origin in Europe rather than the United
States. Import of equipment always reflected the domination of the political.
One of the first imports from the U.S., after the lifting of the blockade, was
1,300 printing presses from the Fulton Iron Works. Production of long-range
radio stations went ahead rapidly with the help of RCA and International
General Electric, at the time when the State Department files had ample
evidence of subversion (see, for example, Microcopy 316, Roll 141 for Soviet
activities in the Dutch East Indies in 1928, the cracking of the Bolshevik code
and instructions to Soviet agents at precisely that time at which permission
was given to RCA and IGE to export radio stations to Soviet Russia).
One at least understands why RCA checked and then double-checked with
the State Department on permission to export high-powered radio stations.
The dominance of the political aspects over the economic did not restrain
development; the Soviets correctly foretold the inaction of major Western
* To place U.S. technical aid to the U.S.S.R. in perspective, the reader is referred to
Current Technical Service Contracts (U.S. Dept. of State, 1966). Brazil is the largest
country in this listing. Pages 62-6 list AID technical-assistance projects in Brazil.
Comparison of these with U.S. aid agreements in the U.S.S.R, in 1028-9 will
convey the enormous size and scope of the latter. There is nothing comparable to
the Ford Motor Co. agreement, for example.
' Ekanomicketkaya Zhisn, No. 225, September 29, 1929, p. 3.
Cmchuiom 349
governments during the transfer of technology. The Soviets were determinedand based their moves on accurate information. Western governments failed
to cooperate one with another and made policy determinations inconsistent
with material on file.
The concessions policy itself had two aspects. On one hand the Soviets
described to the Western businessman the profitable opportunities awaiting
entrepreneurs in the U.S.S.R. These were presented in hopeful little booklets,
backed up by trade journals and trade delegations. On the other hand, theSoviets had only limited interest in the concession hence their eventual
expropriation of the Western entrepreneur naive enough to invest in theSoviet economy. There was no danger to the Revolution, said Lenin: 'Theyare a foreign thing in our system ... but whoever wants to learn must pay.'
The West was needed to build up socialism, did it matter if the Soviets gaveaway a few tens of millions in resources? As Lenin said, 'afterward we shall
get it back with interest.'* The closer the explanation got to the rank and file,
the more explicit were the Communists in describing the fate awaiting theWestern businessman. It was unlikely that W. Averell Harriman was readingKomsomohhaya Pravda, and on this the Soviets guessed correctly. It is less
credible that the State Department did not investigate the ample data at its
disposal—data backed by very accurate field reports—to determine the fate
of investors in the U.S.S.R.
As the lesson penetrated Western business circles, the pure and mixedconcessions were replaced by the technical-assistance agreement, under whichthe assistance was either bought outright or was included as part of a large
equipment order. After the 1928 Gillette Razor Blade concession, no further
pure concessions were concluded. Mixed companies persisted for a few years.
The technical agreement remains and is currently in use.
Kmmomolskaya Pravda, October 9, 1928.
APPENDIX A
A Guide to Sources of Material
Almost all of the material used in this study, including the microfilmed
copies of State Department and other records, has been deposited with the
Hoover Institution on War, Revolution and Peace, at Stanford University.
THE STATE DEPARTMENT DECIMAL FILE
The National Archives has published much of the State Department
Decimal File for 1910-30 on microfilm. Microcopy 316 is the main source for
this study, particularly Rolls 107 to 143. Wherever possible, references are
given to the National Archives microfilm copy, not to the original Decimal
File copy.
The first three figures of such a reference consist of the Microcopy number(usually 316); the second group of figures refers to the roll number in the
microcopy, and the last group refers to the frame number.
Thus, 'U.S. State Dept. Decimal File, 3 16-13 1-228' means that the source
is the Decimal File and the reference may be found in National Archives
Microcopy 316, Roll 131, Frame 228.
Some Decimal File records have not been microfilmed ; these are referred
to by the original Decimal File number (i.e., 361.6221/1). They may bespecially ordered on microfilm, or the original documents may be examinedat the National Archives.
For readers in Washington, D.C., wishing to see the original document(not the microfilmed copy), the National Archives has finding aids whichmake it possible to trace the Decimal File number from the Microcopy-Rollnumbers given in the text.
Documents of the Bureau of Foreign and Domestic Commerce are referredto by file number only. No roll and frame identification exists.
For German Foreign Ministry records references are to National ArchivesSerial, Roll and Frame numbers. Thus, 'German Foreign Ministry, T120-3032-H108752' refers to Microcopy T120, Roll 3032, Frame H108753.
3$2 Appendix A
RELIABILITY OF DATA ORIGINATINGINSIDE THE U.S.S.R.
Archival material from United States and German sources was assessed
according to the reliability given by the respective foreign offices. During
the 1920s the United States had excellent sources of information inside the
Soviet Union. Two agents (IS and IS/2) provided much political and economic
material. IS was especially prolific and passed over many hundreds of docu-
ments. These were assessed by the State Department as reliable, and a number
were marked for the attention of the Secretary and Assistant Secretary. The
writer checked a selection of IS material against later events and found it to
be very precise. No case was found where IS was wrong in an important fact.
APPENDIX B
List of Operating Concessions, 1920 to 1930
TYPE I (PURE) CONCESSIONS
Name
Aktiebolaget Svenska Kullagerfabriken (SKF)
Aktiengesellschaft fur Biuaufurungen
Alftan Concession
Allezundsky Union
Allgemeine-Warren Treuhand A-GAllied American Corp. (See Hammer, Julius)
Allmanna Svenska Elektriska A/B (ASEA)Altebauag
Altman
Aluminum Company of America (ALCOA)American Asbestos Co.
American Industrial Colony
American Industrial Concession
American Model Industrial Corp.
American-Russian Constructor Co, (ARK)Anglo-Russian Grumant Co., Ltd.
Aschberg Concession (Russian Bank of Commerce)
Ayan Corp. Ltd.
Beloukha Corp.
Berger and Wirth A-GBergman A-GBlock and Ginsberg
Boereznsky
Bolton, August
Brand, Leo
Country of Origin
Sweden
Germany
Lithuania
Germany
Austria
Sweden
Germany
Austria
United States
United States
United States
United States
United States
United States
United Kingdom
Germany
United Kingdom
United States
GermanyGermany
GermanyLithuania
GermanyGermany
354 Appendix B
Name
Appendix B
Namt
Hokushinkai
Holland-Ukraine Syndicate
Hotter and Borgen
Holz Industrie Aktiengesetlschaft MologaHudsons Bay Co., Ltd.
Iasima Chatchiro
Igerussko (I. G. Farben)ILVA Alti Forni e Acciaierie d'ltalia s.p.a.
Indo-European Telegraph Co., Ltd.
International Barnsdall Corp.International Harvester Co.
International Mica Co., Inc.
Italian Kuban Concession
Junkers-Werke
Kablitz, Richard (Gesellschaft fur Okonomie derDampferzeugungskosten)
Kahn, Montefiore
Kita Karafu Tau
Marchand et Cie.
Netherlands Spitsbergen Co.
Nichiro-Giogio Kabusiki-Kaisha
Otopitel (Refrigeration)
355
Country of Origin
Japan
Holland
Norway
Germany
Canada
Japan
GermanyItaly
United KingdomUnited States
United States
United States
Italy
Germany
Latvia
/United States,
\ GermanyJapan
France
Holland
Japan
Unknown
Polar Star Concession UnknownPriamur Mines, Ltd. United KingdomPrikumskaya (See Russian-American Agricultural Corp.) United States
Raabe A/BResch Concession
RheinbadenRorio Rengion KumaiRorio Rengio RumianRuben and Bielefeld A-GRussian-American Agricultural Corp. (Prikumskaya)Russian-American Engineering and Trading Co. (Raito)
Russian-American Industrial Corp. (Raico)
Russian-American Mining and Engineering Corp.Russian-American Steel WorksRussian Mining Corporation
Finland
GermanyGermanyJapan
Japan
GermanyUnited States
United States
United States
United States
United States
United Kingdom
3S6 Appendix B
Name
Appendix B
TYPE II (MIXED COMPANY) CONCESSIONS
357
Name
Alamerico (Berlin)
Allied American Corp.
American Foreign Trade Corp.
American Industrial Corp.
Amexima
Arbor Co.
Country of Origin
United States
United States
United States
United States
Holland
Estonia
Baltische Russische Transport und Lager A-G (Baltrustra) GermanyBersol A-G GermanyBrenner Bros. United States
Compagnia Industriale Commercio Estero (CICE)Cunard Line
Dava-Britopol (Ruspoltorg)
Deruluft
Deruneft
Derutra (Deutsch-Russische Transport u. LagerGesellschaft)
Deruwa (German-Russian Merchandise Exchange)
Deutsch-Russische Metallverwertungs
Gesellschaft m.b.H. (Derumetall)
Duverger Concession
Dvinoles Export, Ltd
Eggexport
Eitengon-Schild
Exportles
French Steamship Lines
German Orient Line
German-Russian Krupp Manushka Co.
Hamburg-Ameri! .a Line
Holland-Amerika Line
International Oxygen Corp. (see Ragaz)
Internationale Warenaustauschgesellschaft (IVA)
IRTRANS (Socieil Mista Italo-Russa di
Commercio e Transporti)
Italy
United Kingdom
/Poland,
\ United KingdomGermany
Germany
Germany
Germany
Germany
France
United Kingdom
GermanyUnited States
United Kingdom
France
Germany
Germany
Germany
United States
United States
Germany
Italy
358 Appendix B
Name
Appendix B 359
Name
Russo-British Grain Export Co. (Russobrit)
Russo-Latvian Co.
Russ-Nonvegian Navigation Company, Ltd.
Russot
Russotgorn
Russo-Turkish Export-Import Co. (Russo-Turk)
Russperssakhar
Russpoltorg
Russtransit (Russo-German Trading and Transit Co.)
Sale and Company, Ltd.
Seyfurt A-GSibiko (Danish-Siberian Co.)
Societa Mista Italo-Russa di Commercio eTransport! (IRTRANS)
Soci6te Russo-Anglaise des Matieres Premieres (Raso)
Sorgagen A-GSovmetr
Sovmong
Standard Oil of New York
Stern
Suomen Nahkatehtaitten Osakeyhtio
Sutta, Simon
Sveaexport
Truss, G. H. and Co., Ltd.
Turksholk
Ukrainian Brewing Co. (Okman)Union Cold Storage, Ltd.
United States Lines
Vlessing
Warren, G. and Co., Inc.
West-Oestliche Warenaustausgesellschaft (Wostwag)
White Sea Timber Trust, Ltd.
White Star Line, Ltd.
Country of Origin
United Kingdom
Latvia
{United Kingdom,Norway
International
Turkey
Turkey
Persia
Poland
Germany
United KingdomGermany
Denmark
Italy
United KingdomGermany
France
Mongolia
United States
United Kingdom
Finland
United States
Sweden, Finland
United KingdomTurkey
Estonia
United KingdomUnited States
Holland
United States
Germany
United Kingdom
United Kingdom
360 Appendix B
TYPE III (TECHNICAL-ASSISTANCE AGREEMENT)CONCESSIONS
Name
Appendix B 361
Name
Fr5hlich und Kniipfel Maschinenfabrik
Freyn Engineering Co., Inc.
Gasmotoren-Fabrik Deutz A-GGebriider Sulzer A-GGeneral Engineering Co.
Geoffrey and Curting, Ltd.
Harry D. Gibbs
Goodman Manufacturing Co., Inc.
Graver Corp.
Harburger Eisen und Bronzewerke A-GHect-Feifer A-GHenshien and Co., Inc.
Hercules Motor Co., Inc.
Hilaturas Casablancas S.A.
Higgins, John J., Co.
Humboldt-Deutz Motoren A-G
International General Electric Co.
Irving Air Chute Co., Inc.
Albert Kahn, Inc.
Karlstad Mechaniska Verkstaden A/BKohorn, Oscar A-GKoppers Construction Co.
Frederick Krupp A-G
Lockwood, Green and Co.
Longacre Engineering and Construction Co.Lurgie Gesellschaft fur Chemieund Huttenwerke m.b.H.
Maschinenfabrik Augsburg-Nurnberg A-G (MAN)Maschinenbau A-GMaschinenbau-Anstalt-Humboldt
Maatschappij Tot Exploitatie von Veredlinsprocedes
McCormick Co.
McDonald Engineering Co.
McKee, Arthur T., and Co., Inc.
Mechanical Manufacturing Co., Inc.
Messer A-GMetropolitan-Vickers Electrical Co., Ltd.
Multibestos Co.
Country of Origin
Germany
United States
Germany
Germany
United States
United KingdomUnited States
United States
United States
Germany
Germany
United States
United States
Spain
United States
Germany
United States
United States
United States
Sweden
Germany
United States
Germany
United States
United States
Germany
Germany
Germany
Germany
Holland
United States
United States
United States
United States
GermanyUnited KingdomUnited States
36a Appendix B
Name
Neumeyr A-GNewport News Shipbuilding and Drydock Co.
Nitrogen Engineering Corp.
Officine Villar Perosa (RIV)
Oglebay, Norton & Co., Inc.
Penick and Ford, Inc.
Pierce, Charles and Co.
Pflanzennamme G.m.b.H.
Radio Corp. of America (RCA)
Radiore Co., Inc.
Reidinger, A-GRoberts and Schaefer, Inc.
Scintilla A-GC. F. Seabrook Co., Inc.
Seiberling Rubber Co.
C. V, Smith and Co., Ltd.
Frank Smith Co., Inc.
Societe de Prospection Electrique ProcSdes
Schlumberger
Soci£t£ du Duralumin S.A.
SociSte Francaise Anonyme Lumiere S.A.
Soieries de Strasbourg S.A.
Southwestern Engineering Corp.
Sperry Gyroscope Co.
Standard Oil Co. of New York
Stein A-GSteinert, C. T.
Stuart, James and Cooke, Inc.
Sullivan Co. (see RAITCO)Szepesi, Eugene, Consulting Management Engineers
Telefunken Gesellschaft fur Drahtlose Telegraphie
Thyssens A-GTimken- Detroit Axle Co.
Torfplattenwerke A-G
Underwood Typewriter Co.
Union Shoe
Country of Origin
Germany
United States
United States
Italy
United States
United States
United States
Germany
United States
United States
Germany
United States
Switzerland
United States
United States
Canada
United States
France
France
France
France
United States
United States
United States
Germany
Germany
United States
United States
United States
Germany
GermanyUnited States
Germany
United States
Austria
Appendix B 363
Name
Vakandcr A/B
Vattenbyggnadsbyran A/B
Verein Deutscher Werkzeugmaschtnen Fabriken
Ausfuhr Gemeinschaft (or Faudewag)
Vereinigte Carborundum und Elekritwerke A-GVereinigte Kugellager Fabriken A-G
Warren, G. W., Co.
Webber and Wells, Inc.
Westinghotise Company (see Metropolitan-Vickers)
Westvaco Chlorine Products, Inc.
Wheeler, Archer E,, and Associates
J. W. White Engineering Co.
Winkler-Koch Engineering Co.
W. A. Wood Co.
Country of Origin
Sweden
Sweden
Germany
Germany
Germany
United States
United States
United States
United States
United States
United States
United States
1
i
Selected Bibliography
Aksamitnyi, Anatolii Sergeevich, Die Wolga-Don Grosswasserstrasse, Moscow1929.
Amalgamated Clothing Workers of America, Bibliography of the AmalgamatedClothing Workers of America, New York, 1929.
Amalgamated Clothing Workers of America, Report of the General ExecutiveBoard, Stxtk Biennial Convention, Philadelphia, May 1924.
American Association to Promote Trade with Russia, Reports to the Associa-tion and Bulletins, New York, 1920-1.
American Bankers Association, Commerce and Marine Commission, Russia:A Consideration of Conditions as Revealed by Soviet Publications NewYork, 1922.
American Industrial Colony, Kuzbas.
American-Russian Chamber of Commerce, Economic Handbook of the SovietUnion, New York, 193 1.
Amtorg Trading Company (New York), Amerikanskiai torgovlia ipromyshlen-nosti, New York, 1926.
Amtorg Trading Company (New York), Economic Review of the Soviet UnionNew York, 1926-30.
Association Financierc, Industrielle, ct Commerciale Russe, La situationiconomique et juridique de la Russie sovittique, Paris, 1924.
Bank for Russian Trade Review, Moscow Narodny Bank Ltd., London, 1928.
Bernstein, S. A., The Financial and Economic Results of the Working of LenaGoldfields Limited, Blackfriars, London and Leicester, n.d.
Bron, Saul G., Soviet Economic Development and American Business, HoraceLiveright, New York, 1930.
Burrell, George A., An American Engineer Looks at Russia, Stratford, Boston,n.d.
Butkovski, V. I., Inostranye Kontsessii v Narodnom Khozyetve S.S.S RMoscow, 1928.
366 Selected Bibliography
Clark, W. Gardner, The Economics of Soviet Steel, Harvard, Cambridge, 1956.
Commercial Yearbook of the Soviet Union: 1925, Allen and Unwin, London,
1925.
Conolly, V., Soviet Tradefrom the Pacific to the Levant, Oxford, London, 1935.
Conovcr, Htlen F., Selected List of References on Diplomatic and Trade
Relations of the U.S.S.R., W9-35, U.S. Library of Congress, Washington,
1935-
Dobrovol'skii, Boris Nickolaevich, The Nizhne-Tagil Car Building Works,
Moscow, 1929.
Egorov, Pavel Ivanovich, The Magnitogorsk (Magnet Mountain) Metallur-
gical Works, Moscow, 1939.
Engineering and Mining Journal, New York, 1925-36.
Ford Motor Company, Report ofthe Ford Delegation to Russia and the U.S.S.R.
April-August 1926, Detroit, 1926, Ford Motor Company Accession
Number 49.
Foreign Claims Settlement Commission of the United States, Report,
Washington, 1959.
General Electric Company, The Monogram, Schenectady, 1943.
Geologicheskii komitet, Godovoi obzar mineral'nykh resursov S.S.S.R. sa
1923-6, gg., Leningrad, 1927.
Gerschuni, G., Die Konzessionspolitik Sowjetrusslands, Berlin, 1927.
Gershenkron, A., A Dollar Index of Soviet Machinery Output, 1927-8 to
igjj, RAND Corp., Santa Monica, 1951.
Glavnyi Kontsessionnyi komitet, Documents Concerning the Competence of the
Arbitration Court Set Up in Connection with the Questions Outstanding
Between the Lena Goldfietds Company Limited and the U.S.S.R., Moscow,
1930.
Goulevich, A. de, 'Les concessions et les societes mixtes en Russie sovletique,'
Revue tconomique Internationale, Brussels, 1925.
Great Britain, Correspondence Relating to the Arrest of Employees of the
Metropolitan-Vickers Company at Moscow, Command Paper 4286, London,
1933.
Great Britain, Anglo-Russian Parliamentary Committee, Possibilities of
British-Russian Trade, London, 1926.
Hammer, Armand, The Quest of the Romanoff Treasure, Payson, New York,
1932.
Hilger, G. and Meyer, A. G., The Incompatible Allies, Macmillan, New York,
1953.
Hillman, Sidney, Reconstruction of Russia and the Task of Labor, New York,
1922.
Hirsch, Alcan, Industrialized Russia, Chemical Catalog Company, New York,
1934-
Selected Bibliography 367
Hoover Institution on War, Revolution and Peace (Stanford University),
The Perctval Farquhar Papers {4 boxes).
, American Engineers in Russia. Special Collection.
Indo-European Telegraph Company, Ltd., Annual Reports, London, 1927-8,
IpatiefT, V., Life of a Chemist, Stanford, 1946.
Izdaniye litizdata NKID, Annuake politique et iconomique: igss~s6, Moscow,1926.
Jen, Hwang, Le rigime des concessions en Russie sovidtique, Gamber, Paris, 1929.
Katty kontsessionniky ob'ektov S.S.S.R., Moscow, 1926.
Keller, Werner, Ost minus west=null, Droemerschc Verlagsanstaldt, Munich,
i960.
Kelley, H. G., General Report on Ekaterina Railway, Donets Railway, NewYork, 1926.
Kostrov, Ivan Nikolaevich, The Nadejdinsky & Taganrog Metallurgical Works,
Moscow, 1929.
Krimmer, Alexandre, Sociith de capitaux en Russie impiriale et en Russie
soviitique, LibraLie du Recueil Sirey, Paris, 1934.
Kruglyakova, V. I. (id.), Sbornikstatisticheskikh svedniipogornoi igornozavods-
koi promyshlennosd S.S.S.R., za 1927-8 gg., Moscow, 1930.
Kukel'-Kraevskii, Sorgiei Andreevich, The Svir Hydro-Electric Station for
the Leningrad District, Moscow, 1920.
Larsons, H. J., An Expert in the Service of the Soviets, Benn, London, 1929.
La Vie Economique des Soviets, Editions de la Representations Commercialede U.R.S.S., Paris, 1927-30.
Le Pitrole Russe, supo^ment to La Vie Economique des Soviets, 1927-30.
Lee, Ivy, U.S.S.R.; /; World Enigma, Benn, London, 1927.
Lewery, Leonard John, Foreign Capital Investments in Russian Industries andCommerce, Washington 1923.
Ltberman, L., Trud i frj 1 gorniskov Donbassa, Moscow, 1929.
Littlepage, J. D. and Bess, D., In Search of Soviet Gold, Harcourt Brace,
New York, 1938.
Mamonov, P., Forest Concessions, Khabarovsk, 1925.
Mautner, Wilhelm, Der Kampfum. undgegen das Russische Erdol, Vienna, 1929.
Melville, C. F., The Russian Face of Germany, Wishart, London, 1932.
Monkhouse, A., Moscow igu~ig33, Little, Brown, Boston, 1934.
The Nation, New York, 1923-3.
Nutter, G. Warren, The Growth of Industrial Production in the Soviet Union,
National Bureau of Economic Research, Princeton, N. J., 1962.
368Selected Bibliography
Perm and Marshall (engineers), Report on Improvement of the Ugostal Steel
Plants of South Russia, New York, 1926.
Pim, A. and Bateson, E., Report on Russian Timber Camps, Benn, London,
I93 1 -
Russian Yearbook igi2, Macmillan, New York, 1912.
Ruykeyser, W. A., Working for the Soviets, Covici-Friede, New York, 1932.
Santalov, A. A. and Segal, L. (eds.), Soviet Union Yearbook: 1925, London,
1926 (also 1926-1930 inclusive).
Shimkin, Demitri B., Minerals; A Key to Soviet Power, Harvard, Cambridge,
1953-
State Law Publishing House, Wrecking Activities at Power Stations in the
Soviet Union, Moscow, 1933.
Swianiewicz, S., Forced Labour and Economic Development, Oxford University,
London, 1965.
Thompson, A. Beeby, The Oil Fields of Russia, Lockwood, London, 1908.
Troyanovsky, A., Eksport, import i kontsessii soyuz S.S.S.R., Moscow, n.d.
U.S. State Department, Decimal File 1910-1929 (available at National
Archives, Washington).
U.S.S.R. Chamber of Commerce, Economic Conditions in the U.S.S.R.,
Vneshtorgizdat, Moscow, 1931.
Vysshii sovet norodnogo khoziaistva, Concession Agreement Between the Govern-
ment of the U.S.S.R. and W. A. Harriman and Co., Inc. of New York,
Moscow, 1925.
Zinghaus, Victor, Die Holzbearbeitungsindustrie der Union der Sozialistiscken
Sowjetrepubliken (Ud S.S.S.R.), Gustav Fischer, Jena, 1929.
Zuev, P., Ugol'nya Promyshlennost' ee Polozhenie, Moscow, 1921.
Index
Accumulator Trust, 187, 197Adams, Arthur, 244Adiassevich, 24
Adrian, Wilhelm, 178
Advance-Rumley, 144
A.E.G. See Allgemeine ElektrizitSts Ge-sellschaft
AGA. See Gaso-Accumulator A/BAgro-Joint commune. See Joint Distribu-
tion Committee
AIK (commune). See American IndustrialColony
Akotprom, 130
Akron Rubber Reclaiming Company, 313Aktiebolaget Svenska Kullagerfabriken
(SKF), t77-79, 287, 330, 332-33
Aktieselskabet United Shoe MachineryCompany. See United Shoe MachineryCorporation.
Alamerico. See Allied American Corpora-tion.
Alapaieveky asbestos concession, 285-86.See also Hammer concession
Albatross Werke, 258
Aldenzoloto trust, 97, 105
Alexandrov, E. G., 203
Alfa Laval, 13
Alftan concession, 8, 183, 236
Allen, J. I., Company, 33-34. 33*
Allen & Garcia, Inc., 47, 53, 331
Allgemeine Elektrmtats Gesellschaft, 185,187-91, 198, 306, 293-94, 3«, 32s,33a, 334
Allied American Corporation (Alamerico),108-9, 1 !* 268-69, 185, 330
Allied Chemical and Dye Corporation,108, 2ii, 237
Allied Patriotic Societies, 290Allis-Chalmers Manufacturing Company,
54, 260-70
Allmanna Svenska Elektriska A/B (A.S.E.A.), 187-90, 197, 202, 204-7, 333
All-Union Chamber of Commerce of theU.S.S.R., 293
Altai Polymetal Trust, 77-79Altius and Company, 154Altman concession, 230-31, 233, 329, 333Aluminstroi, 107
Aluminum Company of America(ALCOA), 106
Amalgamated Bank of Chicago, 290-91
Amalgamated Bank of New York, 329
Amalgamated Clothing Workers of Ame-rica, 227-29, 279
Amalgamated Trust and Savings Bank ofChicago, 239
American Association of Manufacturers,*33
American Car and Foundry, 285, 389American Commercial Association toPromote Trade with Russia, 287
American commune, 47American Federation of Labor, 289
American Industrial Colony (AIK),47-50, 133, 228, 283, 307, 338-30
American Industrial Concession, 69
American Industrial Corporation. SeeAmerican Industrial Colony
American Locomotive Sales, Case of 1 937,277, 291, 397
American Locomotive Sales Corporation,90, 171, 389, 297-98
American-Russian Chamber of Com-merce, to*, 119, 28s, 289
370 Index
t
American-Russian Constructor Company(ARK), 235, 3*9
American-Russian Industrial WorkersAssociations (Artina), 228
American Steel Foundries, 173
American Tool Works, 268
Amerikanskoi Ob'edinennoi Kompanii,
285
Amexima, 273
Ammonia Corporation of New York, 2 1
1
Amtorg, 246, 261, 269, 287
Andersson, Gunnar W., 169, 269
Anglo-Baltic Shipbuilding and Engineer-
ing Company, 170
Anglo-Russian Grumant Company, Ltd.,
47, SO. 329
Aniline Dye Trust, 347
Ansonia Clock Company, 182
Arbor Company, 151
Arcos, 42, 147, 152, 25s, »7C~7i
"Arcos Affair," 26
Argus Bank of Barcelona, 42
ARK. See American-Russian Construc-
tor Company
Armmed Trust, 83
Armour and Company, 292
Armstrong, 139
Armstrong-Whitworth, 174, 332
Arsky, 222, 306, 345
Artina. See American-Russian Industrial
Workers Associations
Asaultsehenko, P. B., 119
Aschbcrg concession, 154
A.S.E.A. See Allmanna Svenska Elek-
triska A/B
Asiatic Petroleum, 42
Association Financtere, Industrielle et
Commerciale Russe, 293
Atbassvetmet Trust, 79, 83
Athey Truss Wheel Company, 173
Austin & Company, 247~49. 332
Australian commune, 128
Autoimport, 261
Automatic Damper Company, 301
Avery and Moline, 277
Avtotrest, 248, 347
Ayan Corporation, Ltd., 100, 103
Ayers Airco, 261
Azneft, 18, 20-22, 26-27, 3", 34. 38-40,
43. 328, 333
Babcock and Wilcox, 302
Backe and Wagner, 154
Backe and Wigg, 154
Badger, E. B., and Sons, 39Baldwin Locomotive, 169, 171, J73-74,
184
Ballilo, 263
Baltimore and Ohio Railroad, 240, 332
Bank of Italy, 290-91
Barbot-de-Marni, Professor E. N., 94
Bartsch, 13
Bary, B. W., 14, 185-86
Bayerische Motor Werke, 263
Bayerische Stickstoff Werke, 2t:
Bebroff Foreign Trading Company, 288
Beckmann, C. W., 169
Bell Petrole, 42
Belukha concession, 77
Berdichevsky, 156
Bergen Steamship Company, 255
Berger, Julius, 253
Berger and Wirth A-G, 220-21, 223, 330,
346
Bergman, 71, 330, 346
Berlin Trade Delegation, 264-65
Bersol, 214, 217, 264, 330
Bethlehem Steel, 148, 292
Better, van der, 77, 81
Blair and Company of New York, ao, 277
Block and Ginsberg, 233, 330
Blue Bird Motor Company, 42
Boeing B-17, 259
Boereznsky concession, 39
Bogdanov, 147, 315-16, 345
Bolinder Company, 160
Bolton, August, 255
Bop und Reiter, 155
Borah, Senator, 285
Borman, 39Borsig, A., G.m.b.H., 175, 211
Brand, Leo, Company, 222
Brandt, A. J., Company, 244, 248, 347
Braun and Company, 297
Brenner Brothers, 146-47
Brill Car Company, 173
British Petroleum, 28
British-European Timber Company, 162
British-Mexican Petroleum Company, 42
Brock, H., 222
Index 37*
Bromley Brothers, 35
Bron, Saul G., 246
Bronart, Professor E„ 23a
Brown, Lyman, 2t6
Brown Lipe Gear Company, 14*, 247-48
Brown-Boveri, 175. "88, I0Q> *°4> *0D>
33*Browning, 266
Bryner and Company, Ltd. See Tetyukhe
Mines, Ltd.
B.T.M. Company, 193
Bucyrus Company, 93, 97, 139, 269-70,
3*3
Budd, Ralph, 240
Buiro Inostrannoi Nauki i Tekhniki
(BINT), 176
Burrell-Mase Engineering Company, 38
Burroughs Adding Machine Company,
183, 302
Bussetti, Commendatore Ferdianando,
"7
California commune, 127
Campbell, Thomas, 120, 331
Canadian Society for Technical Aid to
Soviet Russia, 129
Cannon, 329
Casale Ammonia S-A, 211-14, 223, 332
Case Machinery, 140, 143
Caterpillar Tractor Company, 137
Central Concessions Committee. See
Chief Concessions Committee
Centroprobizol, 197
Centrosoyuz, 237, 271^72
Chadboum, Philip, 18
Chandler, Harry, 296
Chase, Frank, Company, Inc., 72, 176,
184
Chase National Bank, 90, 226, 262, 277-
78, 289-91, 297-99
Chaugat, 266
Chemstroi, 212-15
Chemtrust, 24
Chichinadze, 205
Chief Concessions Committee (Glavkont-
sesskom), 7, 13, 28-29, 157-58, 184,
269
Choukov', 37, 43
Christensen concession, I4S_46
Citroen, 184, 144, 345
Clayton Company, *77
Cloudt, 211
Coblitz, Richard, concession. See Kablitz
concession
Coleman, 1 19, 299
Colt, 266
Columbia Graphophone Manufacturing
Company, 300
Commissariats of Labor and War, 3ti
Commission on Fixation of Nitrogen, 209
Committee for Settling Jewish Toilers on
the Land, 129
Committee on Inventions, 300
Compagnia Industrial Commercio Es-
tero (CICE), 27sCompagnie de Produits Chimiques et
Electromerallurgiques S.A. (France),
107
Compagnie Generale de TSF, 187, 194-
0S. 33*
Comparre Oil Company, 28
Concessions : applications and agreements,
1921-30, 9; definition, 8. See ohoAppendix B
Coolidge, President, 121
Cooper, Colonel. See Cooper, Hugh L. &Company, Inc.
Cooper, Hugh L. & Company, Inc., 202-
4.347Cooper Engineering Company. See Coo-
per, Hugh L. & Company, Inc.
Cooperative Wholesale Society, 271
Cox, R., 200
Craig, Ltd., 36-37
Cramming, 135
Crossley Company, 33-34. 33*
Cross process, 37-38
Crouardi, 71
Cunard Line, 255, 330, 333
Curtiss, 261-62, 333
Czech Mission in the U.S.S.R., 128
Dalzol (Far East Gold Trust), 100
Danish-Siberian Company (Sibiko). See
Siberian CompanyDava-Britopol, 272, 329
Davis, Arthur P., 1*1, 33*
Day, Mason, 20-21
De Havilland Aircraft Company, 256-57,
260, 263
Deere Company, 102, 289
37* Index
Deilmann Bergbau und Tiefbau Gesell-
achaft, 216, 331
Demag A-G, 33*. 334Derop, 42
Deruluft (German-Russian AviationCom-pany), 256, 26*, 272, 330
Derumetall (Deutsche-Russische Metall-
verwertungs G.m.b.H.). 272. *74> 330.
33*
Deruneft, 272
Derutra (German-Russian TransportCompany), 25s, 264. 274. 3*7. 33". 33*
Deruwa (German-Russian MerchandiseExchange Society), 134, 271
Det Store Nordiske Telgraselskab. -See
Great Northern Telegraph Association
Deterding, Sir Henri, 41
Deutsch, Otto, 293-94
Deutsch-Russische Agrar A-G (Druag),
116, 3*9
Deutsche Bank, 76, 36, 170, 279
Deutsehe-Russtsche Film Allianz A-G(Derufa), 217
Deutsche-Russische Naptha Company, 42
Deutsche-Russische Saatbau A-G,(Drusag), 1 17-18, 331
Deutz A-G, 142, 184, 33*
Deutz Type UMX, 260
Diabolo-Separator, 13
Dickie, Frank E., 107
Dillon, Reed and Company, 216
Disconte Gesellschaft, 87
Dobb, Maurice, 9, 226, 314
Dobbs, 39Dobrolet, 256
Dodge Brothers, 144
Doheny, E. L., 296
Dollar, Robert, Company, 286
Donugo!, 51-53, 333
Dornier, 256, 259
Dornio-Wal, 263
Dortmund Association, 153
Douglas Aircraft Company, 260
Downs, Frank E., 77, 321
Drazhud gold fields, 102
Drost, 53
Druag. See Deutsch-Russische AgrarA-G
Drusag concession. See Deutsche-Rus-sische Saatbau A-G
Dubert Company, 182
Dukhorbor commune, 128
Dupont Company, 21 1-14, 223, 291, 332,
347Duranty, Walter, 292, 298
Duverger, 28-29
Dvinoles, 150-51, 153, 155
Dvinoles Export, Ltd., 155, 272
EBY Company, 148
Echo commune, 131
Eddy, Sherwood, 117
Edelmetall Verwertungs Gesellschaft, 106
Eggexport, 272
Eitingon-Schild, 147, 287, 330
Electric Auto-Lite Company, 142
Electric Controller and Manufacturing,
173
Electroexploatsia, 187, 198, 228
Electroselstroi, 187, 197, 228
Electro-Technical Trust (GET), 14, 186-
87, 190, 200
Elmashstroi, 187, 191, 200
Embaneft, 39, 328, 333
Emegess, 201
EMSCO, 2i
Epstein, 261
Equitable Trust Company, 277-78, 291
Ericsson Company, 187-88, t93-9&, 33*
Erste Brun. Maschinen, 204
Estonian commune, 126
Euroamerican Cellulose Products Cor-poration of New York, 217
Exploles, 150-51, 159
Exportugol, 46
Eybye, T. E., 245
Fabrik (Czechoslovakia), 204
Fairbanks Morse, 148, 288
Fairmont Railway Motors, 173
Far Eastern Prospecting Syndicate. See
Far Eastern Prospecting Company, Inc.
Far Eastern Exploration Company. SeeFar Eastern Prospecting Company, Inc.
Far Fastem Prospecting Company, Inc.,
too, 102, 285. See also Smith, Charles
H.
Farben, I. G., 209, 211, 220-21, 293, 332,
347
Index 373
Farman-Goliath, 263
Farquhar, Pereival, 72-73, 90, *4°-4« . 297
Faudewag, 176, 184, 33a
Fauser, an, a 14
Ferguson, Harry, Ltd., 153, »6i, 331
Fiat, 140, 244, *66, 303. 330. 33*
Finnish commune, 128
First All Russian Import and Export
Company, Ltd., 270
Fokker, 256, 260, 263, 332
Ford Motor Company, 117, 134-35. 138-
40, 165, 245-49, *6S, 291, 303, 332,
336, 347-48
Fordson (Putilovets), 138, 141, 144, 183,
319Foreign Products Company, 277
Foss, 183
Foster-Wheeler Corporation, 39Fox and Company, 262
Franco-Russian Association for the Studyof the Metric System (SOVMETR),x8i
Freyn and Company, Inc., 67, 73-75, 332,
347Friedenberg, 171
Friedlam A-G, 253. 33*
Fulton Iron, 332, 348
Furness Withy, 271
Gaier, 234Gakkel, Professor, 174
Gasmotoren-Fabrik Deutz A-G, 166-67
Gaso-Accumulator A/B (AGA), 187, 197,
330, 333Gay, Edwin F., 296
Gefrierschachbau, 217, 332
GEFU. See Gesellschaft zur ForderungGewerbligher Unternehmungen
Glesenkirchner Borgwerke A-G, 87
General Chemical, 211
General Electric Company, 161, 174-75,186-87, 189-92, 197, 201-4, 220, 243,
249, 252, 285, 291, 332. See also Inter-
national General Electric, Inc.
General Engineering Company, 216, 331
General Motors, 246
Geoffrey and Cutting, Ltd., 235, 329
German General Electric. See AllgemeineElektrizitSts Gesellschaft
German Orient Lines, 254German Volga Bank, 116
German-Russian Agrarian Association,
116
Geirnan-Russian Krupp Manuskha Com-pany, 116
German-Russian Merchandise ExchangeSociety. See Deruwa
German-Russian Seed Cultivation Com-pany, 118
German-Russian Transport Company.See Derutra
Gesellschaft far Wirtschaftliche Bezie-
hungen mit den Osten, 155
Gesellschaft zur Forderung GewerbligherUnternehmungen (GEFU), 258, 259,
26s, 329GET. See Electro-Technical Trust
Gibbs, H., 347Gillette Razor Blade concession, 237, 349
Gipromez, 73^75, 246, 347Giproshaft (Institute for Designing Coal
Mines), 53
Glavelectro, 188, 192
Glavkontsesskom. See Chief ConcessionsCommittee
Glavmashstroi, 176, 246, 248
Gleason, McLanahan, Merritt, and Ingra-
ham, 301
GNOM, 319
Goelro, 185, 201
Gompers, Samuel, 227, 291
Gomza, 33-35. 167-68, 172-73, 175-76
Goncharov, 85
Goodman Manufacturing, Inc., 47, 55
Gosplan, 209, 316
Gosspirt, 197
Gosstrakh, 197
Gouria Petroleum Corporation, Ltd., 29,
329Graftio, 202
Graver Corporation, 37~38, 332
Great Northern Telegraph Association,
249-50. 33°
Grindler, 50
Grozneft, 32, 38-39, 156, 328, 333
Guaranty Trust, 285, 289
Guedella, H., 100
Haber process, 211
Hamburg-Amerika Line, 255, 261, 274,
330. 334Hammer, Armand, 109, 112, 285—86
374 Index
Hammer, Dr. Julius, 285-86
Hammer concession, S, 108, 147, 183,
437, 2°8
Hammerschmidt, D. A., concession, 100,
103
Hammond, John Hays, 12!
Harbord, General, 250-51.
Harburger Eisen und Bronzwerke A-G,234
Harding, 296
Harold commune, 127
Harriman, W. Averell, 12, 15, 28, 86-91,
136, 158, 237-38, 277, 291, 293. 297,
299. 3". 329, 334, 349Harriman concession. See Harriman, W.
Averell
Hawkins, T. G., 47
Haywood, Bill, 49, 279
Haywood concession, 283
Heald Machine, 268
Hecker A-G, 253, 330
Heckmann, 36-38
Hect-Feifer, 234
Heisler Company, 193
Heller, A. A., 288, 332
Henshien, H. G., 234
Herbert, Alfred, 302
Hercules Motor Company, 142, 248
Hewlitt Company, 202
Higgcns, John J., 187, 190
Hilaturas Casablancas S.A., 47, S5
Hilger, G.,239, 256, 258, 262-63, 273-74,286, 293-94, 304, 308
Hill Electrical Drills, 21
Hillman, Sidney, 227-29, 327
Himmelsbach, 155
Hirsch, Alcan, 24, 214-15, 320
Hispano-Sutza, 263
Hochseefischerein, 329
Hohernzollern, 332
Hollerith, 183
Holt (Russian), 134-35
Holtzman, A-G, 192
Holz Industrie Aktien Gesellschaft Mo-loga, 151, 154-57, 272, 322, 329-30
Hoover, Herbert, 121, 298
Hudson's Bay Company, 146, 329
Humboldt A-G, 1 10-1 1 , 33 1 , 334
Hunt, Henry T„ 102
IGE. See International General Electric,
Inc.
Igerussko, 220
Ikor, 130
Ilmarine, 170
ILVA Alti Forni e Acciaierie d' Italia
a.p.a., 51
Imkommune Uhlfeld, 7, 129
Indo-European Telegraph Company, 250
Ingersoll-Rand Company, 73, 268
Inter-Allied Railway Commission, 102,
240, 284
International B. F. Goodrich Company,148
International Barnsdal! Corporation, 14-
15, 18, 20-23, 25-27, 41, 48, 291, 317,328-29, 331
International Electric Light Cartel, 192
International Pur Exchange, 289
International General Electric, Inc., 6, 14,
26, 34, 39, j6, 1M, 187-88, 192, 198,
207. 253. 289, 33". 347-48. See also
General Electric CompanyInternational General Motors, 245
International Harvester, 132, 135-36,139-40, 143-44, 156, 184,270,277,285,287, 289. 33o, 334. 344
International Mica Company, Inc., 107,
329International Oxygen Corporation, 34,
2t9, 334International Packing Company, 149
International Union of Cooperatives, 279Inventions Bureau (TsBRIZ), 302
Ipatieff, V. I., 209, 211, 264-65, 300, 306,308
Ira commune, 126, 13 r
Irtrans, 330
Irving Air Chute Company, Inc., 261,
332
Isaacson Iron Works, 148
Iva, 272
Jeffry, 54
Jennings, Emerson P., 288
Jewish-American Committee, 130
Johnson, Mathey and Company, 106, 332
Johnson, Professor A. A., 120
Johnson, Senator, 285
Joint Distribution Committee, 129-31,286
Index 375
Joint Tractor commission, 130
Joukoff, 193
Junkers, 236-57, 259-60, a6a—63, 307,330. 33*. 334
Juut, Niels, of Christiania, 277
Kablitz, Richard, concession, 180, 302,3*9, 333, 346
Kahn, Albert, Ire, 141-42, 176, 184, 218,291, 330, 347
Kahn, Montifiore, 218Kainer, Karl, 169
Kaiser, 35
Karlsrads Meehaniska A/8, 202, 204,208, 332
Kazuli concession, 272Keeley, Royal, 135, 165, t86
Kelley, R. F., 2+0-42, 25'. 297-98
Kellogg, Secretary of State, 251
Kelly, 261
Kemna, 118
Kharkov Provincial Council of People'sEconomy, 233
Khlebexport, 271
Khleboprodukt, 124-25
King, Senator, 291
Kiseltrust, 53
Kita Karafuto Sekio Kabushiki Kasha, 29,
47Kita Sagaren Sekio Kigio Koumaiy, 29Klemmer, M., 13, is7, 186, 595-96, 202
Klimov, I., 264
Klisko, 270
Knapp A-G, 331
Koehring Company, 173, 332
Kohorn, Oskar, A-G, 233, 332
Koksobenzol, 219
Kolotchevaky, 193
KSnigsberg, City of, 1 18
Kopp, Victor, 258
Koppers A-G, 51, 332, 334
Koshsuryo, 272
Kossayger, 272
Kossel, P., A-G, 236, 329
Krassin, Leonid, 7, 147, 270, 305-6, 319,335, 345
Krasny Loutch commune, 127
Krupp, Blohm and Voss, 258
Krupp, Frederich, 47, 54, 115, 121. 13*>
139, 204-6, 254, 265-^6, 322
Krupp Agricultural concessions, 1 14, 1 16,
329-30, 332, 334Krupp'sche Land concession ManytschG.m.b.H. See Krupp Agricultural
. concessions
Ksandrov, 157, 158
Kuban sulphates concession, 306
Kubtrestpotash, 216
Kuibyshev, V. V., 307-8
Kuppe, Dr., 74-7SKuzbas commune, 228, 307Kuzbaztrust, 53
Labor Field commune, 126
Lacey and Lacey, 301
Ladd, Senator, 291
Langmann, H., and Sons, 233, 331
Lanz, 11S
Larsons, H. J., 167, 320
Laurence and Company, 271
Ledeke, 254Lee, Ivy, 41, 292
Leitz, 330, 334Lena Goldfields, Ltd., 8, 14, 47, 50, 76-
78, 81,83, 95-99, 158, 269, 293, 3*9-30,333, 346
Lenin, 6, 165, 198, 201, 218, 267, 296,305-6, 308, 318, 340-41, 345. 348-49
Lenmashstroi (Leningrad Machine-Building Trust), 164-65
Lensky Zolotopromishlennoie Tovari-chestvo, 95
Lenzoloto trust, 93
Leoning Aircraft Company, 261
Lerva, 81
Levin, 156
Levy, N., 274Lewis gun, 266
Lied, Jonas, 286
Link Belt Company, 148
Littlepage, J. D., 321
Litvin-Sedoy, Z. T„ 245
Liubimov, N., 9Lively, 285
Lockheed Aircraft Company, 260
Lockwood, Green and Company, 231,332
Locomotive Design Competition of 1927,7
376 Index
Locomotive Firebox Company, 174
Locomotive Terminal ImprovementCompany, 174
Lomonosov, 165) 168-69
Lomov, 54
London and Northern Trading Company,Ltd., 151-52
Longacre Construction Company, 236,
33'
Lopato, A., and Sons, 235, 329
Low-Tension Trust, 187, 103, 195, 200
Lucey Manufacturing Company, i8(21-
22, 289
Lurgie Gesellschaft filr Chemie undHiittenwesen m.b.H., 214, 217
Lyubertsy Agricultural Machinery Works,
136-37. 1S6
McClintock and Marshall, 141-42
McCormick, T. H., 72
McCormiek Company, 234-3S, 291, 332
McDonald, 85, 236, 307, 332
Maatschappij, N. V., Tot Exploitatie vonVeredelinsprocedes, 234, 332
MacLcan gun, 266
Mamin, I, B., 133
Mann A-G, 33~3+. 33*
Marchant, 183
Martens, Ludwig C. A. K., 170-71, 283,
286. 288, 297, 300
Maschinenbrau A-G, 25, 35, 331
Maschinenfabrik Augsburg-Niirnberg
A-G, 35. 176
Mashinostroi, 199
Maslocentr, 126
Massey-Harris Company, 144
Maxim gun, 266
Mechanical Manufacturing Company,
234. 332
Melik-Pashaev, 205
Mercantile Trust, 289
Mercedes-Benz, 144, 245, 260
Merchants National Bank, 297
Meshlauk, 246
Messer A-G, 220, 332
Metallotorg, 274
Metalosindikat, 34, 219
Metropolitan-Vickers, Ltd., 21, 26, 165,
187-89, 192, 198-200, 202, 204-6, 324,
332
Meyerovitch, J. A., 54
Miemza concession, 18a
Mitsubishi, 331
Mitsui Shakeef, 47Mochkovitch, 193
Moissieff, 332Mologa. Set Holz Industrie Aktien
Gesellschaft Mologa
Monkhouse, A., 192
Monroe, 183
Morgan Company, 148
Morris and Company, 233, 288, 329
Moscow Co-operative Bank, 279
Moscow Tailoring Combine, 226
Moskvugol, 52
Mosmash, 25, 35, 166
Mossukno, 230
Mostroi (Moscow Construction Trust),
156
Muchnic, Charles M., 174
Muitibestos Company (United States),
nr-12Mulvihill, James P., 288
Nagle Engine and Boiler Works, 148
Nathan Manufacturing, 174
Nansen Mission, 117
Narkomvneshtorg(PeopIe's Commissariatof Foreign Trade), 254
Narova Company, 151
National Civic Federation, 289-90
Neftsyndikat, 28, 35, 39, 41-42, 333
New Economic Policy (NEP), 5, 182,313,
319
New Hide Manufacturing Company, 288
New World commune, 126
New York Life Insurance Company, 290
New York Trust Company, 90, 297
Newport News Shipbuilding and DrydockCompany, 202, 204, 206
Nicdermayer, Major Oskar Ritter von,262
Nielsen and Winther, 260
Nieuport aircraft, 263
Nitrogen Engineering Corporation, 212-
iS, 223, 347
Nordiska Bensin Aktiebolaget, 42
Nord-Ost concession, 272
North Dvina-Vichegoda, 151
Index 377
Northwestern Military Industry Com-mittee, 254
Norton Company, 300
Norway-Russian Nervation Company,UA., 153, 330
Novik concession, 233
Novy Mir commune, !;i
Nutter, G. Warren, 112, 172, 190, 215,221
Nyquist and Holm, 269
Ocean Travel Bureau, 272Occidental Petroleum Corporation, 285
Officine, S.A., Villar Perosa <RIV), 179Oglebay Norton Company, 331, 347OGPU, 160, 305, 307-8, 346Okman concession, 233
Oolcura Gumei, 159
Orgametal, 138, 176, 347
Orient Bank, 255
Orient Line, 355Osram Valves, 192
Ossinsy, V. V., 246
Oudin, Maurice A., 186
Ozet, 130
Pamp, 277Parker Company, 148
Payne Export and Import Company, 262Pearson, A., 50
Penick and Ford, Inc., 234Pennsylvania Boiler Works, 148
Pennsylvania Railroad, 292
People's Commissariat for Agriculture,
"4. 197
People's Commissariat of Foreign Trade,254. 269
People's Commissariat of Supplies, 145People's Commissariat of Transportation,
242People's Commissariat of Ways and Com-
munications, 95
Perin and Marshall, 72Perkins process, 31
Persaneft, 272
Persholk, 272
Persian-Azerbaidjian Naptha Company,43
Perskhtopok, 272
Persshold, 272
Petersen, Hugo, 214, 217
Phillips Company, 192
Phoenix A-G, 273
Pierce, C, 47Pintsch, 36-37, 39, 33a
Polar Star concession, 47, 50Polymetal Trust, 78Powell, J. W., 47Prikumskaya Russo-American Associa-
tion, 117
Proletarian Life commune, 127
Prytz and Company, 134
Raabe concession, 237, 330, 333Rabtnoff, Max, 262
Raby-Khiki Kansha, 151, 159, 330
Radio Corporation of America, 187, 190,
19s, 201, 214, *S°-52, 3», 330, 33*.347-48
Radiore Company of Los Angeles, 31
Ragaz (Russian-American CompressedGas Company), 33-34, 319-20, 329
RAIK (RAIC). See Russian-AmericanIndustrial Corporation
RAITCO. See Russian-AmericanEngineering and Trading Company
Ramzin, L. K., 302
Rapallo Treaty, 86, 222, 235, 258, 293,316-17, 319, 3*7, 346
Rappaport, G. L., 269
Ratao. See Russische-OesterreichischeHandels und Industrie A-G
Rateau, 204
Rautanen, Lauri, 128
Rawack & Grunfeld A-G, 58-59, 86-88,9i
> 3*9,331
RCA. See Radio Corporation of America
Rechlin, Dr., 51
Rector, Hibben, Davis, and Macauley,302
Red Banner commune, 126, 131
Reed, Dillon, 73
Reed, John, si8
Reed, John, commune, 126, 131
Reichs Kredit Gesellschaft, 279Reidinger, L. A., A-G, 176
Reinke, 14, 186, 194Renault, 144, 266
378Index
Repola Wood, Ltd., t55> *7»
Resinotrest, 222-23, 248. 333
Rheinische-Stahlwerke A-G, 273
Rheinmetal A-G, 273
Rhenish-Weatphalian Metal Products and
Machine Company, 51
RIV, 33a
Roberts & Schaefcr, Inc., 47, 53
Roesch, A.p272
Rohrbach, 259, 263
Romanoff Caviar Company, 234, 319
Roosevelt, H. L., 300
Rorio Rengio Kumai, 151, 159
Rorio Rengio Rumian, 131, 159
Roscnbaum, Dr. G. L., 112
Royal Dutch Shell, 32, 41-42. 292
Rueben and Bielefeld, 274
Ruhrfond (Relief Fund for Ruhr
Workers), 264
Rusavstorg, 330
Rusplatina, 106
Ruspoltorg, 272
Russangloles, Ltd., 151-SS. 27*. 327, 3*9
Russcapa, 272, 33°
Russgertorg, 33, 220, 264, 273-74, 329-
30. 342Russhollandoles, Ltd., 151, "53-55, 272.
327
Russian Bank of Commerce, 1 54
Russian Committee of the GermanEconomy, 304
Russian Land Concession Manytsch,
Ltd., 114
Russian Oil Products (ROP), 42
Russian Railway Service Corps, 240
Russian Singer, 289
Russian Wood Agency, Ltd., 153
Russian-American Engineering and Trad-
ing Company (RAITCO), 269, 321.
Russian-American Industrial Corporation
(RAIK or RAIC), 227-29, 329, 332
Russian-American Instrument Company,
1S0, 283, 330
Russian-American Mining and Engineer-
ing Corporation, 107
Russian-American Steel Works, 283, 330
Russian-Asiatic Stock Company, 272
Russian-European Company, 277
Russian-Norwegian Navigation Company,
255
Russische-Oesterreichische Handel* undIndustrie A-G (Ratao), 274-7S
Russland ausschuss der Deutschen Wirt-
schaft, 304
Russnorvegloles, 151, 153-S5. *72. 3*7
Ross-Norwegian Navigation Company,Ltd., 153
Russo-Asiatic Consolidated, Ltd., 76, 30s
Russo-Austrian Trading Company (Rus-
avstorg), 274
Russo-Baltic Works, 170, 345
Russo-Bclgian Company, 218
Russo-British Grain Export Company,Ltd., 271
Russo-Latvian Company, isi
Russot, 267, 272
Russperssakhar, 272
Russtransit, 255, 272, 327
Ruston-Bucyrus. See Bucyrus Company
Rutgers, S. J., 48. 5°
Ruykeyser, W. A., 109-12, 3°7
Rykov, 18, 165, 303, 312, 321
Sack, 118
Sakhalin coal concessions, 51, 333
Sakhalin oil concessions, 28-29
Sakharotrust, 197
Sale and Company, 41
Sapodles, 150-51, "53
Schalit, Morduch, 152
Schlesinger, Dr. G., 137-38, «42
Schley, Reeve, 289, 298
Schlumberger, 3
1
Schulmann concession, 330
Scott, Hall, Motor Company, 261
Scott, Sir Leslie, 98
Seabrook, C. F., Company, 248. 33*
Seattle commune, 128
Seattle-Astoria Iron Works, 148
Seeckt, General von, 258, 262
Seeley, 148
Seiberling Rubber Company, 223, 248,
332Serebrovsky, 18, 20, 39, 43, 105
Serkovsky, Yan, 192
Severoles Trust, 130-55. J5 8
Seyatel commune, 126
Seyfurt concession, 276, 329
"Shakta Affair," 294, 325, 34°, 34»
Index 379
Shark (Russian-Persian Import and Ex-
port Company), 43, 27a
Shatof, 240
Shelkotruat, 232-33, 307
Shipton, Anderson and Company. 271
Shorin, A. F.. 196
Shova Kiuka Kabushiki Kaisia, 100, 103
Shulhof, Otto B., 147
Shulmann, Elia, 236-37
Siberian Company (Sibiko), 125, 272
Siberian fish canneries, 148
Siemens A-G, 81, 188, 203-4, 207, 334
Siemens Bau, 332
Siemens-Schukert concession, 77, 83, 189,
306, 319, 332
Sikorsky, Igor, 259
Sinclair Exploration Company, 20, 29,
291
Singer, B., 302
Singer Sewing Machine Company, 181-
8a, 184, 228, 244, 287
SKF. S« Aktiebolaget Svenska Kullager-
fabriken
Skou-Keldsen, 233
Slessarev, V., 259
Smith, C, 102
Smith, C. V., Company, (Canada), 1
1
1-12
Smith, Charles H., 1 19. 284-86, 289-90
Smith, Frank, Company, Inc., 165
Smith Canning Machine Company, 148
Societa Minere Italo-Belge di Georgia, 28
Societa Mista Italo-Russo di Commercio
e Transport!, 27s
Sociite Anonyme Franco-Suedoise pour
la Fabrication de Soie en Russie, 232
Societe deProspectionElectriqueProcedes
Schlumberger, 31
Societe du Duralumin S.A. (France), 107
Societe Industrielle de Matieres Plas-
tiques (S.I.M.P.), 2'7. 33°, 333
Sociite Miniere et Metallurgtque
"Union," 62
Society for Economic Relations with the
East, 155
Society for Technical Aid to Russia, 49,
126
Society for Technical Help to Armenia,
127
Society for Technical Help to the
U.S.S.R., 128
Society for Trade with the East, 157
Society of Friends of Russia, 1 17
Soieriea de Strasbourg S-A, 23a, 331
Solnikov, 379
Sommermeyer, Waldemar, 169
Sorenson, K., 165, 248, 3 '9, 3*4
Sorgagen A-G (Germany), aB
Southwark Foundry and Machine, 174
Southwestern Engineering Corporation of
Los Angeles, 83, 347
Soviet Volunteer Fleet, 254
Sovmong, 27a
Soyuszoloto, 104
Sperry Gyroscope Company, 183-84, 332
Spitalsky, E. I., 264
Sredazvodkhoz, 121
Standard Oil Company ofNew Jersey, 41
,
191-92
Standard Oil Company of New York, 37"
38, 41-42, 17s, 292, 330. 334
Standard Steel Car, 174
State Aniline Trust, 221
State Electrical Engineering Experimental
Institute, 201
State Electro-technical Trust, 952
Stebbins Engineering and Manufacturing
Company, 161
Stein A-G, 47, 53~54
Steinback and Taube, 331
Steinert, C. T., 232, 332
Steinitz, 59Steinmetz, Charles P., 186
Steinschneider, 39
Steyer, 144
Stinnes, it8, 121
Stock A-G, 233, 329
Stockholms Superfosfat Fabriks A/B, at 1
,
214
Stolzenberg, 265
Storens, F., 28
Straube, Dr. lng., 107
Stuart, James and Cooke, Inc., 47, 5'-53>
56, 59. 33' , 347Studebaker, 246
Studiengesellschafc fiir die Aufnahme des
gesamten Handels mit dem Osten, 293
Stutzer, Professor, 99
Sudotrust, 254
Sullivan Machinery Company, 47, 54,
369-70, 277, 33i
Sunbeam Electric, 174
Superheater Company, 174
Sutta, Simon, 268
38o Index
Svetmetzoloto, 85
Swedish Separator Company, 287, 332
Szepisi, Eugin, 331
Techmekh (Precision Engineering Trust),
180, 183
Telefunken Geseltschaft fiir Drahtlose
Telegraphie, 196
Telefunken Radio, 322, 332
Tetiukhe (Bryner) concession. See Tet-yukhe Mines, Ltd,
Tetyukhe Mines, Ltd., 47, 50, 78-79, 85,
286, 3*9, 333Textilstroi, 132
Third International Clothing Factory,
283
Thomas, Richard, Ltd., 75
Thomas Company (United States), 202,
332
Thomson-Houston, 204
Thyssen A-G, 47, 5'. 53~54
Tiefenbacher Knopfabrjk A-G, 231, 233
Timken-Detroit Axle Company, 142,
247-48
Tokmefch, 333
Traktorstroi, 176
Trans-Siberian Cables Company, 250
Trilling concession, 230, 329, 333
Trotsky, 305
Troyer-Fox, 148
Trud commune, 127
Truss, G. H., and Company, 124-25, 272,331
Tschemo A-G, 86
Tsentrozhilsoyuz, 236
Turkestan Company for Raw MaterialsPreparation, 28
Turksholk, 272
Ugostal, 63, 66, 72, 333
Ukrchim, 210
Ukr-Voidukh-Put, 256
Underwood Company, 182, 184, 332
Union Cold Storage Company, Ltd., 124-
25, 176, 272, 329, 333
Union Miniere, 46-48, 57
Union Oil Company, 297
Union Shoe Company, 23
1
United American German Corporation,
73
United Shoe Machinery Corporation, 231
U.S. Commissioner of Patents, 301
U.S. Department of Agriculture, 212
U.S. Department of Commerce, 301
U.S. Department of State, 10, 13, ai, 167,
195, 201, 213, 216, 250-51, 261-62,284, 289-90, 294-301 , 303 , 3 1 6-1 7, 320,326, 336, 347-48, 352
U.S. Machinery, 268
U.S. Military Intelligence (MID), 11,262, 266
U.S. Rubber, 268
U.S. Steel Corporation, 91, 148
U.S. War Trade Board, 277, 288, 296Ural Industrial Bureau, 109Uralasbest, 109-10, 307Uralmed (Ural Copper Trust), 80, 85, 307Uralsvetmet, 81
Urquhardt, 6-7, 76, 305
Vakander, 197, 332
Van Soon, 236
Vanderlip, Washington B., 296-97
Vattenbyggnadsbyran A/B, 302, 204Verein Deutschcr Werkzeugmaschinen
Fabriken Ausfuhr Gemeinschaft (Fau-dewag), 176
Verein ORT, Gesellschaft zur Forderungdes Handwerke und der Landwirtschaftunter den Juden, 129
Vereinigte Aluminumwerke A-G, 107Vereinigte Kugellager Fabriken A-G, 179Vereinigte Stahlwerke, 73Vesenkha, 59, 74, 176, 209, 216, 228, 246,
316
Vickers, 266, 332Vickers-Armstrong Company, 170
Vimalert Company, 261-62
Vinge and Company, 145, 329Vint, I. C, concession, 100-1
Vlessing, 41
Vneshtorg, 273-74, 3°4
Voegele, iss
Volga-Deutsch Bank, ti6
Waite, E,, 112
Wallace Bridge and Structural Company,148
Ware, Harold M., 117, 329
Index 38l
Warren, G., Inc., 47, 57
Webber and Wells, Inc., 234
Welder, Wilson, 174
Wenkhouse, 255
Werkstaden Kristinegamm A/B, 302, 104,3o6, 33a
Western Electric, 157, 187-88, 193, 196
Westinghouse Air Brake Works, 167-68,
»74. 184, 289, 330, 34s
Westinghouse Electric, 26, 54, loa, 189,
19'. 199. a°4. 344. *52-53. ^85, 287
Westvaco, 423, 347Wheeler, Arthur E., 83
Whttcomb, G. D. h 174
White, Harry Dexter, case, 284
White, J. G., Engineering Company, 202,
204, 332
White Sea Timber Trust, Ltd., 133
White trucks, 140, 244
Wiener, J., 147
Wilke, 36-37, 33*
Wimmler, Norman L., 83
Winkler-Koch Corp., 35, 37, 39
Wirth, 155-56, 286
Wirtachafteliche Verband der DeutschenHochsecnscherein, 146
Wolff, Otto, Trading concession, (Russ-
gertorg), 33, 73, »73
Woll, Matthew, 289-90
Wood, W. A., Company, 81, 85
Worthington Pump Company, 148, 289
Wostwag, 216, 27*, 274, 330-31
Wright and Smith, 148
Yotara Tanaka, 100, 103
Young, Evan E., 296
Yurt, S8-S9
Zakoshansky, A. A., 174
Zausmer, Lew, 186
Zautinsky, 261
Zentrale Moskau, 258, 262
Zemotrust, 114, 120
Zhdanov, 63
Zinoviev, 201, 308
Zippen and Bissener, 273
Zvetmetzoloto (Non-Ferrous MetalsTrust), 77
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